Goldman CEO David Solomon sees only 35% chance of soft landing, stocks lower in 2023

Goldman Sachs (GS) CEO David Solomon expects the inventory market’s slide to go on in 2023 and thinks the odds of a recession hitting the U.S. economy are about 2-out-of-3.

Speaking at the Wall Street Journal’s CEO Council Summit on Tuesday, Solomon mentioned he expects shares will be lessen, alongside with oil and real estate (equally commercial and household), while the U.S. dollar is poised to increase a little following yr.

In the meantime, Solomon placed the likelihood of a “smooth landing” — or a slowdown in inflation that will not idea the economy into recession — for the U.S. economic system at only 35%.

“I would determine a delicate landing as we get inflation back shut to 4% inflation, maybe we have a 5% terminal fee and we have 1% growth,” Solomon explained. “I consider there is a realistic likelihood we could navigate a circumstance like that.”

“But I also imagine there is certainly a pretty affordable possibility that we could have a recession of some sort,” Solomon included.

David Solomon, Chairman and CEO, Goldman Sachs, speaks throughout the Milken Institute Worldwide Convention on May possibly 2, 2022 in Beverly Hills, California. (Photograph by Patrick T. FALLON / AFP) (Photograph by PATRICK T. FALLON/AFP via Getty Pictures)

Solomon’s own perspective reflects significantly considerably less optimism than the consensus forecasts of economists at his firm, who see the U.S. economy “narrowly avoiding” a economic downturn and stocks closing flat up coming calendar year.

The firm’s equity system crew led by David Kostin mentioned in its year-ahead outlook revealed last month they anticipate the S&P 500 will complete 2023 at 4,000. The benchmark index shut at 3,941 on Tuesday.

When questioned about the 10-year Treasury yield in a Q&A at the end of his job interview, Solomon mentioned his view is dependent on whether or not or not an economic downturn can be prevented.

“As opposed to providing you a number, if you listen to my see, we have received a yield curve that if you normalize — if you get that soft landing — you are going to see that 10-calendar year Treasury yield higher,” Solomon reported. “If you don’t get that gentle landing, you’re likely to see a reversal of policy, and then you can see charges the same or reduced.”

It is unsurprising, in accordance to Solomon, to be in a interval of bigger prices as the Federal Reserve attempts to deliver down inflation caused by substantial fiscal stimulus and the “black swan” results of war in Eastern Europe.

“The market place is producing an assumption that we’ll arrive at the terminal fee sometime before long and the [Fed] will bring charges again down, and if you glimpse at most tightening cycles, historically, immediately after some interval of time, you do see a reversal,” Solomon stated. “But I think we are nevertheless early in this – I think it is uncertain.”

Goldman Sachs forecasts the U.S. central bank’s key plan price, the federal cash price, to peak at 5% to 5.25% all over mid-up coming 12 months.

Even so, economists at the financial investment bank do not expect the Federal Reserve to start out reducing fascination fees in 2023.

Alexandra Semenova is a reporter for Yahoo Finance. Stick to her on Twitter @alexandraandnyc

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