U.S. stock market put in a resilient performance on Thursday, given the data showing inflation surging to a new 40-year high. Goldman Sachs have now cut their forecast for growth for the world’s largest economy in 2022 to 1.75%, from 2% previously.

Rising gas and food prices will create an effective 0.7 percent point drag on real disposable personal income in 2022. Consumer sentiment tends to be affected by geopolitical crises, and already gauges from Morning Consult and Ipsos have dropped. “Although households will likely partially offset this income drag by reducing savings, this hit to income should weigh on spending in 2022,” says Goldman.

The downgrade to Europe’s growth prospects will hit U.S. exports, and a tightening of financial conditions will also weigh on U.N. growth. The Goldman team said, if anything, they may be too positive on the outlook for the American economy. Recession risks are mounting, they said.

The chances of a U.S. recession next year are between 20% and 35%, they say. European stocks were the trendy call for 2022, on the logic that the region would benefit from the NextGenerationEU spending. Investors aren't sharing that view now, with the largest-ever retreat from European equities.
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