Goldman, JPMorgan Predict Jolt in US Stocks on Inflation Miss

Goldman Sachs and J.P. Morgan have both issued warnings about a potential jolt in US stocks due to an inflation miss, as investors brace for the release of key economic data. The two investment banks have differing views on the pace of inflation decline and the impact of tariffs, but they agree that a surprise in inflation data could lead to a significant market reaction.

Goldman Sachs Research forecasts US GDP to grow 2.5% on a full-year basis in 2025, which is higher than the consensus forecast of 1.9% by economists surveyed by Bloomberg. They expect core PCE inflation, excluding tariff effects, to fall to 2.1% by the end of 2025, which is lower than the market expectation of around 2.5%. However, Goldman Sachs also expects tariffs to boost core PCE inflation to 2.4%, but this would be a one-time price level effect.



J.P. Morgan Research, on the other hand, forecasts global core inflation to remain sticky at around 3% in 2024, which is higher than the market expectation of a further decline towards the Federal Reserve's 2% target. They expect core goods inflation to return to modest positive gains in the first half of 2024, while core services inflation will likely remain elevated. J.P. Morgan also expects inflation to cool significantly in the US, but still remain above target, with core goods prices stabilizing and core services prices cooling less noticeably.



The sectors and stocks most vulnerable to an inflation miss are those with high exposure to goods prices, particularly used cars, and services with sticky prices, such as rent. Used car prices have been a significant driver of inflation in recent years, but they have started to decline, with wholesale auction prices falling 9% peak-to-trough through mid-June. This pullback is expected to continue, weighing on consumer prices in the coming months. Stocks with high exposure to used car sales, such as CarMax (KMX) and AutoZone (AZO), could be vulnerable to an inflation miss.

Rent has also been a significant contributor to inflation, but apartment rent list prices have decelerated sharply, and lease renewals are no longer providing upward pressure. This could lead to a slowdown in rent inflation. Companies with significant exposure to the rental market, such as American Tower (AMT) and Crown Castle (CCI), could be affected by a slowdown in rent inflation.

A jolt in US stocks could significantly impact global markets and investor sentiment due to the interconnectedness of global financial markets and the influence of US market dynamics on investor psychology. A sharp decline in US stocks can trigger a sell-off in other major markets, as investors may perceive it as a sign of broader economic weakness or a shift in market sentiment. This contagion effect can lead to a global market crash, as seen during the 2008 financial crisis.



A jolt in US stocks could also lead to increased demand for safe-haven assets like US Treasury bonds, pushing up their prices and driving down yields. This could, in turn, impact global bond markets and currency exchange rates, as investors adjust their portfolios to reflect the changing risk landscape. Additionally, a sharp decline in US stocks could lead investors to become more risk-averse, leading to a sell-off in other riskier assets like emerging market stocks and high-yield bonds.

In conclusion, Goldman Sachs and J.P. Morgan have both issued warnings about a potential jolt in US stocks due to an inflation miss. While their forecasts differ in terms of the pace of inflation decline and the impact of tariffs, they agree that a surprise in inflation data could lead to a significant market reaction. Investors should be prepared for potential volatility in the US stock market and consider hedging strategies to protect their portfolios.