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July 2022

MARKET PULSE | July 2022

Macro Views

Recession Risk

US recession risk has risen. We believe the path to a soft landing remains possible, though it has narrowed. While commodity prices, inflation expectations, and shelter inflation have all continued to increase, we also see signs of necessary activity deceleration, moderating labor demand, and improving supply chains. Should a recession occur, strong private sector balances and an absence of financial imbalances may lessen the severity and duration of any economic contraction. Read More


We believe US core PCE has peaked, as goods inflation has moderated on materially improving supply chains. However, we expect concerns over long-term inflation expectations to remain top of mind, especially as services will likely keep overall inflation elevated and broad-based. Read More

Monetary Policy

We expect the Fed to hike by 75bps in July and ultimately arrive at a terminal rate of 3.25-3.50% by year end, in line with current market pricing. Still, risks are to the upside as the Fed’s conviction in combating inflation suggests no upper limit to the policy rate. The ECB, BoE, and RBA are all likely to echo the Fed in stance but vary in pace. Read More

China Growth

Following the economic slowdown earlier this year, China’s 5.5% GDP target requires 7.2% annualized growth in 2H 2022, which is well above consensus forecasts. However, new COVID-19 waves and a weak consumption outlook skew risks to the downside. Fiscal and monetary policy support may act as key drivers of growth in the remainder of the year. Read More

Market Views


The S&P 500 dipped into bear market territory last month, reflecting market realization of more front-loaded monetary policy tightening. Prices now indicate greater likelihood of a recession in the medium-term, nearing the historical average for shallower recessionary pullbacks. As such, we think prices may grind higher over the next year, albeit with elevated volatility near-term. Read More


We think corporate credit risk is not only driven by the cost of financing, but also by the access to it. With just 4% of US high yield bonds maturing in 2022 or 2023, we do not see significant threats from a near-term maturity wall. Within the universe, we now prefer high yield bonds over bank loans due to stronger credit trends among high yield issuers and greater rate re-rating pressure for bank loan debtors. Read More


Past instances of muni yield and spread surges have seen strong subsequent performance, with returns frequently benefiting from higher starting yields and price appreciation. With an improving technical backdrop and tax-equivalent spreads relative to taxable bonds above long-term averages, we believe now is a favorable entry point for munis across the credit spectrum. Read More


We raised our YE 2022 WTI and Brent forecasts to $125 and $130, respectively. While OPEC+ raised near-term production targets, many members have yet to reach existing targets, making any additional supply commitments less likely to be realized. We now hold a neutral view on gold as slowing Chinese growth and rising rates may provide headwinds to a fear- and inflation-fueled price breakout. Read More

Bearing the Bear

The S&P 500 has contracted  -19% to date, nearly commensurate with the median peak-to-trough decline during previous US recessions. Markets may continue to search for the bottom. But we find comfort in knowing that past periods of deep contractions featuring high inflation have also displayed elements of financial overheating, which we believe are absent today. The significant valuation compression seen so far have similarities with past cyclical bear markets, driven mostly by shifting rate and inflation dynamics. Consequently, we expect any spillover economic impact will likely be short and shallow.


The depth and scale of equity pullbacks are influenced by the type of bear market. Structural bears feature financial imbalances that take nearly eight months to rebound from bear territory and a decade to fully unwind. Event-driven bears are catalyzed by exogenous shocks with equities recovering in a year. And, cyclical bears—led by evolving inflation and rate dynamics as seen today—have found market bottom within 100 days from the initial 20% decline.

Source: Goldman Sachs Global Investment Research.

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