The sell-off in the stock market may be far from over if the US economy is headed for a recession, according to Goldman Sachs. The S&P 500 index fell 4% on Wednesday, putting it on the edge of a full-fledged bear market. The catalyst for the sell-off seems to have been weak earnings reports from retail stores this week, which suggests inflation is starting to eat into consumer spending and business profits. While a recession is not guaranteed, Goldman predicts a 35% chance of a recession over the next two years. That signals a bigger downside risk for equities, according to chief US equity strategist David Kostin. “Through the 12 recessions since World War II, the S&P 500 has fallen from peak to trough by an average of 24%. This drop from the top of the S&P 500 is near. 4800 in January 2022 would bring the S&P 500 index down to around 3650 (11% below current levels) An average 30% drop would lower the S&P 500 to 3360 (-18% vs. with today),” Kostin wrote in a note to clients Wednesday night. Recent economic data has been mixed, with first-quarter GDP turning negative and the housing market showing signs of cooling even as the labor market remains strong. However, inflation remained high, raising concerns that the Fed would have to hurt the economy to rein in prices. With Target and Walmart now joining Big Tech stocks in deep discounts, the market is starting to look more like a pre-recession environment. Since 1981, the sectors that performed best just before the recession included utilities, energy, consumer goods and healthcare, according to Goldman. “In the 12 months prior to the recession, the defensive sectors and the ‘quality’ factors in general performed better,” Kostin wrote. However, once the recession kicks in, consumer staples and healthcare are by far the best performers, according to Goldman, while the energy sector lags far behind the market. larger field. Timing the market is always a difficult proposition for investors, and moves towards recession are no exception. Historically, the stock market started falling before a recession officially hit and then bottomed out before the economy turned to growth again. However, one example where that pattern has not held up is the recession of 2000 and the related tech bubble, which some strategists have used as a comparison point for the market’s current decline. stock. In that case, the market continued to decline well after the recession ended, lasting eight months after the recession ended and 30 months after peaking before the recession, Kostin wrote. – Michael Bloom of CNBC contributed to this report.