(Bloomberg). According to strategists at Goldman Sachs Group Inc, US stock investors see greater odds of a downturn than positive macroeconomic indicators.

“A recession is not inevitable,” Goldman strategists led by David Kostin wrote in a note. “Rotations within the US equity market indicate that investors are pricing elevated odds of a downturn compared with the strength of recent economic data.”

Kostin gave an example of the decline in defensive sector stocks and cyclical stocks since January. He said that this had led to a 17 percent drop. “The relative performance of these two factors has closely tracked the level of the ISM index for more than a decade,” Kostin wrote. “The ISM currently stands at 55, but the relative performance of cyclicals versus defensives would imply a level below 50.”

The hawkish Federal Reserve and stubbornly high inflation have caused US equity markets to be hampered this year. This has raised the possibility of an economic recession. Now, it is down 18% since its January peak. It has fallen to near bear market territory after posting Wednesday’s largest daily decline since June 2020. The drop came after major US retail earnings reported raised concern about the impact on corporate margins by rising prices.

However, stocks will continue to decline and strategists from BlackRock Inc have echoed the belief that worries about a recession imminent are exaggerated. to Marko Kolanovic at JPMorgan Chase & Co. Kolanovic is confident that things can get better for US stocks as the year progresses. 

READ: JPM’s Kolanovic Says Stocks ‘Can Climb Out of This Hole’

Comparing the S&P 500’s performance across 12 recessions since World War Two, Goldman’s Kostin said the US benchmark contracted from peak to trough by a median of 24%. Kostin stated that the index would see a similar drop from January’s record high to close to 3650 points, which is nearly 7% less than current levels. However, the average decrease of 30% would lead to a decline to 3,360.

The futures market also implies S&P 500 dividends will drop by almost 5% in 2023. “During the last 60 years, S&P 500 dividends have not declined outside of a recession,” the strategist said. 

Kostin stated that quality and defensive factors had outperformed 12 months prior to a recession. “Across five recessions since 1981, the median experience saw energy, staples, health care and utilities outperform the index,” he wrote.

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