In summary from a Goldman Sachs note on stock market gyrations.
Goldman warns stock market selloff may affect GDP growthA 5% equity drop and 21bp fall in 10-year Treasury rate could reduce GDP growth by 12bp over next yearEvery 10% stock market decline estimated to cut GDP growth by 45bpIncluding other asset moves, the total impact could be around 85bpA 20%+ selloff would be needed to push the economy into recession, given current GDP growth above 2%GS says the ‘wealth effect’ is a key driver, consumers may reduce spending as investment values fallA further market decline could influence Fed’s monetary policy decisionsGoldman says the Fed is unlikely to intervene with current 7% S&P 500 drawdown from record highSome commentators calling for emergency rate cuts, but Goldman says no serious market disruptions yet”While market stress is noticeably higher than a week ago, our FSI suggests that there are no serious market disruptions to date that would force policymakers to intervene”
This article was written by Eamonn Sheridan at www.forexlive.com.
