- Analysts from Goldman Sachs say to "keep the faith" in a soft landing for the US economy.
- Market volatility has been more about positioning than a looming recession, the analysts said.
The US is "en route to a soft landing," despite the intense bout of market volatility seen this month, according to analysts at Goldman Sachs.
The analysts say that the recent wild market swings have been fueled more by positioning than a looming recession.
The volatility "has been as much about market dynamics and crowded investor positioning as about the evolution of economic fundamentals," the analysts wrote in a Thursday note.
Goldman notes the market has oscillated in the past year over concerns about economic growth and inflation, and while its been especially volatile after a weak July jobs report, the market upheaval is likely overdone.
They say it's important to focus more attention on recent data showing signs of a resilient economy.
"From a market standpoint, we again think it makes sense to lean against extreme concerns and keep the faith in the modal view of continued expansion and decelerating inflation, rather than an imminent recession," the analysts wrote.
The most recent data has indeed been encouraging.
Jobless claims fell last week to 227,000, a 7,000 drop from the weak prior. More importantly, inflation has also seen considerable easing, with consumer inflation cooling 2.9% in July to a three-year low, according to the latest CPI report released Wednesday.
Retail sales were also encouraging. Sales increased 1% in July, exceeding analysts' expectations of 0.3%, according to data released Thursday.
Given the latest data, the analysts said fears from last week's sell-off are overdone.
"We think growth fears moved too far, and in places look overpriced relative to our central forecast," the analysts said.
Investors are forecasting a 100% chance the Fed begins cutting interest rates in September, with a 78% chance of 25 basis points and a 22% chance of 50 basis, according to the CME FedWatch tool.
The analysts reiterated the bank's base case for a 25 basis point cut at each of the next three meetings.
"Another weak jobs report would put a 50bp cut in September on the table, but we think the market has been over-weighting that probability," the analysts said.