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Goldman Sachs sees 35% chance of recession in 2 years

Yahoo Finance Live’s Julie Hyman and Brian Sozzi discuss Goldman Sachs pricing in a 35% chance of recession within the next two years.

Video Transcript

JULIE HYMAN: Here are the three things that you need to know right now on this Monday morning. And first up, we start with another recession call. This one is coming to us from Goldman Sachs. And it's putting a probability, so Goldman's economics team coming out with a new report, saying there is a 35% chance we could see a recession in the next two years, 15% in the next 12 months.

The chief economist, Jan Hatzius, among other things, is looking at the Fed's big challenge reducing the gap between jobs and workers, as well as slowing wage growth to a pace closer to its 2% inflation goal. So you've been on, like, watch, on hyper watch for these recession calls. I mean, as they go, this isn't, like, that high of a doom and gloom one. 35% in the next two years--

BRIAN SOZZI: Close to 50%, though.

JULIE HYMAN: 35% is close to-- that's really routing up--

BRIAN SOZZI: It's inching toward 50%. That's how we tend to write these stories up online. No, but Julie, how these calls usually work is, it takes one analyst or one economist to come out in the Street saying, hey, things are not going to look too good. And once somebody does that, they all seem to follow. That was Matt [? Musetti. ?]

Friend of our shows, Deutsche Bank, came out about two weeks ago and said, we see a recession. Now you see Goldman Sachs piling on. Essentially, they're saying, Julie, there's no soft landing. This notion that the Fed can magically raise rates, and the economy may or may not fall off a cliff, it's just pie in the sky stuff. That was my take here.

JULIE HYMAN: OK, so my take was a little bit different. I skipped ahead to the end, where they said recession is not inevitable. And indeed, if you're looking at a 35% chance over the next two years that's not the majority. That's not 50%.

BRIAN SOZZI: So fair enough.

JULIE HYMAN: That's a third, right? So it's not a foregone conclusion at all. They talk about the post-COVID normalization and labor supply that is on the Fed's side, that we are still seeing these current drivers for inflation coming from what's happening with goods, what's happening with the supply chain. That should start to work itself out. So it's not 100%. 35% is very far from 100%.

BRIAN SOZZI: Fair enough. Like, look, keep in mind, this comes at the same time as China. China is dealing-- you know, we got that overnight data here. Retail sales in China continue to be under pressure.

JULIE HYMAN: Yeah, retail sales were down 3 and 1/2% in March. Now they just reported first quarter GDP that was up 4.8% on an annual pace, which is better than estimated. However, to your point, this doesn't really wait towards March, when there have been shutdowns in China that have really been affecting the GDP. Home sales, by the way, by volume in the first quarter in China, down 25.6%.

BRIAN SOZZI: It kind of gives you a hint of what could happen here with the mortgage rates on the 30-year above 5%, right?


BRIAN SOZZI: We're not in sync here. You're not feeling my calls here today, Julie. It's OK. It's day one back in the studio. I'll win you over.