Goldman Sachs: Concerns about a US economic recession have been exaggerated, expecting 3 more interest rate cuts this year

After the global market experienced "Black Monday," global stock markets are generally rebounding.

Goldman Sachs also pointed out in a report released on the 7th that although some economic data in the United States is weak, investors' concerns about a US economic recession may be exaggerated. Employment is indeed weak, but the severity of the economic recession has been exaggerated.

Goldman Sachs: Weak US Employment Data, Concerns about Economic Recession May Be Exaggerated

Goldman Sachs pointed out that the non-farm employment report for July in the United States showed that the weakness in the labor market conditions exceeded expectations, with sluggish wage and household employment growth, and the unemployment rate further rose by 0.2 percentage points to 4.3%.

Therefore, we have raised the probability of a US economic recession by 10 percentage points to 25%, and we expect the Federal Reserve to cut interest rates by 25 basis points in September, November, and December consecutively (previously, it was once per quarter).

However, Goldman Sachs also stated that , despite this, inferring too much from a single employment report is usually wrong unless there is a major economic shock that suddenly changes the situation.

We believe that the recent rise in the unemployment rate is less risky than before, partly because over 70% of the increase in the US unemployment rate in July is attributed to temporary layoffs, which may reverse in the coming months.

Moreover, historically, temporary layoffs are not a good indicator of predicting an economic recession. We are skeptical about the risk of a rapid deterioration in the labor market because job vacancies indicate that labor demand remains robust, final demand continues to grow at a healthy pace, and there are no apparent negative impacts that could catalyze an economic recession.

If the market further plunges significantly in the future, the US economy may fall into a recession. Therefore, we believe that the risk of a recession is still limited.

As emphasized by Federal Reserve Chairman Powell last week, the Federal Reserve still has 525 basis points of interest rate cut space, and if data or market conditions allow, the Federal Reserve will act quickly to support the economy.

Possibility of Continued Market Correction Not Ruled Out

Goldman Sachs pointed out that concerns about US economic growth have driven a sharp decline in risk appetite in asset markets this week. Although some assets have rebounded in the past two trading days, the market may still face further correction.

Regarding interest rates, although the market currently has reason to expect the Federal Reserve to cut interest rates, and some aggressive analyses believe that the Federal Reserve may cut interest rates early to appease the market.

We believe that overly early easing policies are unreasonable if there is no clear evidence of serious economic or market problems.

In terms of stocks, Goldman Sachs expects earnings growth to drive the S&P 500 index to reach 5600 points by the end of the year.

Historically, a 5% major drop often represents a buying opportunity. Nevertheless, given our expectation of a gradual slowdown in US consumer spending, we believe that the risk for US consumer stocks still leans towards the downside.

In addition, we remain cautious about the Japanese stock market in the near term, as the Japanese stock market may once again face risks such as liquidation, stop-loss, and systematic investor selling. We also maintain a cautious stance on Asian stock markets Goldman Sachs also pointed out that the future needs to closely monitor the U.S. presidential election, as the outcome may have significant impacts on the macroeconomy and the market.

If Trump wins, as he has indicated he will raise tariffs, this may lead to a stronger dollar.

Conversely, if Harris wins, this may lead to a weaker dollar.

Furthermore, if Trump is re-elected and raises tariffs again, it may lead to a redistribution of the global trade landscape, which could benefit Mexico and Southeast Asia, leading to a 1-2% increase in GDP growth in these regions