Brace for a bigger stock drawdown, wider credit spreads, and recession – Goldman Sachs

Goldman Sachs is worried that the drop in stock prices will get worse. Goldman Sach’s economists are likely to move their base case to a recession if the tariffs are implemented as President Trump promised. 

The company’s Dominic Wilson said, “We think there is a high chance that we continue to push toward full recession pricing, which would imply weaker equities, wider credit spreads, a deeper Fed cutting cycle, and higher longer-dated equity volatility.”

The market is still not priced for an average recession

There has already been a big change in cyclical pricing. However, Goldman Sachs’s growth benchmarking exercises suggest that the market is still not priced for an average recession. 

Comparing past events with present times shows that bigger drops in equity usually accompany recessions. That’s not all. Recessions come with much bigger drops in the Fed funds rate than are priced.

Dominic Wilson said, “Among common recession gauges, only the VIX is at levels associated with past recession peaks: longer-dated equity volatility, credit spreads, and the yield curve are not.”

In addition, Larry Fink, CEO of BlackRock, said on Monday that many business leaders think the US economy is already in a big downturn. He added that many CEOs he has talked to believe we are already in a recession.

He also said that he thinks President Trump’s policies on tariffs could make prices rise and make it harder for the Federal Reserve to lower interest rates. This is something the central bank usually does during recessions.

Economists warn Trump’s tariffs could push the U.S. into a recession — Goldman Sachs now says there's a 45% chance, while JPMorgan predicts it's even higher at 60%. pic.twitter.com/41Ex2N1fzu

— NowThis Impact (@nowthisimpact) April 8, 2025

Jamie Dimon, CEO of JPMorgan Chase, said Wednesday that he thinks the US economy will likely go into recession. JPMorgan experts think the US gross domestic product will drop 0.3% this year. This is a mild recession call, but it comes after a year of strong growth.

Markets are steady as nations continue to make policies

Anxiety about the tariffs going into effect has caused stocks to drop for four days in a row. Tuesday was even more volatile. At one point, the S&P 500 went up more than 4%, but by the end of the day, it had lost 1.6%. 

At its peak for the day, the 30-stock Dow went up 3.9%, but by the end of the day, it had gone down 0.8%. It’s almost 19% below its all-time high. 

Today, the S&P 500 went up as traders looked for a bottom in the market after days of volatility. It added 0.4% to the broad market average. There was a small gain of 67 points, or 0.2%, in the Dow Jones Industrial Average. The Nasdaq Composite went up 1.2% at the same time.

However, China and the EU announced taxes on US goods in response to the US announcement. This is the latest development in the global trade war. Shortly after the market opened Wednesday, President Donald Trump urged investors to remain calm in a post on Truth Social. Trump also added, “this is a great time to buy.”

China said it would put an 84% tax on U.S. goods starting Thursday. This comes after 104% taxes on Chinese goods entered into effect in the US just after midnight. The EU also approved to put tariffs on goods coming from the US for the first time, which will begin on April 15.

Also, tariffs on goods coming into the US from other countries went into force. Canada said again on Tuesday that it will put 25% tariffs on US-made cars as a response. This includes cars that don’t follow the rules of the USMCA agreement. In addition, parts of fully built USMCA-compliant cars that were brought into Canada from the US and that aren’t from Canada or Mexico are included.

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