American banking giant Goldman Sachs has identified new risks facing the United States economy amid sustained uncertainty.
In this context, the bank has pointed to a potential stock market correction as the most significant near-term threat, warning that a sharp pullback in equities could materially slow growth in 2026.
The bank’s U.S. economist, Pierfrancesco Mei, expects the economy to expand by 2.5% year over year in the fourth quarter of 2026. That outlook is supported by a mix of fiscal support, easier monetary conditions, and reduced tariff pressures. However, the projection assumes financial markets remain relatively stable.
According to the bank’s analysis, a 10% decline in the stock market during the first half of the year could trim around 0.5 percentage points from gross domestic product, lowering growth to roughly 2.0%. A deeper 20% slump would have a more pronounced impact, cutting close to a full percentage point from the baseline forecast.
“Our analysis suggests that a sharp equity correction represents the most significant near-term risk,” Mei said.
The primary channel of risk is the so-called wealth effect. When asset prices rise, households with significant holdings in equities and real estate tend to feel more financially secure and increase spending, even if income growth is modest.
In recent years, that dynamic has largely benefited higher-income Americans, who own the majority of stocks and have seen substantial portfolio gains.
The rally has been especially strong in benchmark indexes such as the S&P 500, which has delivered sizable cumulative returns over the past three calendar years.
Surging stock prices
Individual technology names, including Nvidia (NASDAQ: NVDA), have posted even sharper advances during the same period. Those gains have helped sustain consumer spending, which accounts for roughly two-thirds of U.S. economic activity.
A reversal in equity prices could quickly weaken growth. Because the top 10% of earners account for nearly half of consumer spending, portfolio losses may curb outlays, particularly in a K-shaped economy where lower-income households are already strained.
A correction would likely widen those divides by undermining the spending power supporting expansion.
While the bank does not expect a single trigger for recession, it warns that a sharp selloff combined with AI-driven job displacement and weak productivity could pose broader risks, potentially prompting Federal Reserve rate cuts.
Even a modest pullback could erode confidence and slow spending in the second half of 2026, turning a recent tailwind into a drag.
Meanwhile, Finbold reported that other Wall Street strategists expect the market to end the year at a record high, with analysts projecting the S&P 500 could finish at 7,500.
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