Goldman Warns Equity Market Crash Is Biggest Risk To 2026 Growth Forecast

Goldman Sachs forecast for US GDP growth of 2.5% in 2026 on a Q4/Q4 basis (or 2.8% on a full-year basis) is significantly above consensus (+0.4pp), supported by tax cuts, a reduced drag from tariffs, and easier financial conditions.

However, in the latest note from Pierfrancesco Mei within the Economics research team, they analyze five potential downside risks to their optimistic 2026 growth forecast.

First, a potential stock market correction could weigh on consumer spending and business confidence.

We estimate that a 10% decline in equity prices sustained through 2026Q2, for example, would reduce 2026 GDP growth by about 0.5pp relative to our baseline.

Second, more disruptive deployment of artificial intelligence (AI) is the key risk to our baseline of labor market stabilization.

We estimate that an additional 0.5pp increase in the unemployment rate would weigh on consumer spending growth by about 0.4pp. But the net GDP impact depends on whether AI just discourages hiring or also boosts productivity growth.

Third, tariff rates could rise further or the share of the costs that fall on consumers could rise more than we expect.

We estimate that an additional 5pp increase in the effective tariff rate would boost core PCE inflation by 0.5pp relative to our baseline and reduce 2026 GDP growth by 0.4pp.

Fourth, geopolitical tensions could raise oil prices. Our commodities strategists expect oil prices to peak in February and gradually ease through the rest of 2026.

We estimate that each $10/barrel increase in oil prices relative to this baseline would weigh on 2026 growth by a modest 0.05pp on net.

Fifth, losses on private loans in late 2025 and the recent sell-off of private investment funds' stocks have raised concerns around risks from nonbank lending.

We estimate that a distress scenario where loan losses at private credit firms increase to 5%—up from the historical average of about 2%—would decrease 2026 GDP growth by 0.2pp.

In conclusion, Goldman's analysis suggests that a sharp equity correction represents the most significant near-term risk.

While no single downside risk above would bring the economy into recessionary territory unless the shock were very large, the simultaneous materialization of multiple risks - particularly a combination of an equity market sell-off and AI-driven labor market displacement with limited productivity gains - could pose more substantial growth headwinds.

In that scenario, the Fed would likely cut interest rates more aggressively to offset some of the impact.

Professional subscribers can read the full note: "Quantifying the Downside Risks to Our 2026 Growth Forecast" here at our new Marketdesk.ai portal