In summary from a Goldman Sachs note on stock market gyrations.
- Goldman warns stock market selloff may affect GDP growth
- A 5% equity drop and 21bp fall in 10-year Treasury rate could reduce GDP growth by 12bp over next year
- Every 10% stock market decline estimated to cut GDP growth by 45bp
- Including other asset moves, the total impact could be around 85bp
- A 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 fall
- A further market decline could influence Fed's monetary policy decisions
- Goldman says the Fed is unlikely to intervene with current 7% S&P 500 drawdown from record high
- Some 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"
