Goldman’s recession warning

This week felt like the longest month ever.? Phil Rosen here — who knew you could age so precipitously in so few calendar days??

The?bank crisis?that started with?Silicon Valley Bank?last Friday continues to unfold with what feels like?to-the-minute developments.?

Ignoring Warren Buffett for a moment (he's on a $500 million spending spree these last three days), Wall Street strategists have been telling me all week they're concerned for what comes next.?

And Goldman Sachs says that this series of unfortunate events makes it?harder to be optimistic?for the trajectory of the US economy this year.?

Plus, in case you missed?Insider's LinkedIn Audio Event, senior finance editor Dan DeFrancesco spoke with chief finance correspondent Dakin Campbell about the winners and losers of Silicon Valley Bank's failure.?You can listen here.

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1. Goldman Sachs yesterday revised its recession odds for the year.?Before this week, the firm gave the US a 25% chance of tipping into?recession?in 2023.?

In light of the bank runs, bank failures, and bank stock volatility,?those odds are now at 35%, strategists said Thursday, citing "increased near-term uncertainty" surrounding the effects of small bank stress.?

Thursday's research note followed a separate forecast from Goldman that slashed 2023 GDP outlook by 0.3%, to 1.2%.

Remember, three major banks just failed in short order, and while others like?First Republic?and?Credit Suisse?haven't collapsed, they've been about as stable as a giraffe on stilts (both banks were?thrown life lines in the middle of this week).

Silicon Valley Bank and Signature Bank?marked the second and third largest bank failures in history, respectively, behind only Washington Mutual in 2008.

What stands out about Goldman's revised forecast, however, is that the firm says a downturn is now more likely even though markets have begun to?price in easing policy from the Fed?— which typically would spark lower, not higher, recession odds.

Before last Friday, traders largely expected a 50 basis-point rate hike at this month's FOMC meeting.?Now, 75% are expecting a 25 basis-point hike, and the remaining odds are on no rate hike at all, according to CME's FedWatch Tool.

If the Fed does indeed ease up on policy, it would mean policymakers are prioritizing financial stability over their inflation battle.?

There are signals elsewhere in markets,?too, that suggest a recession is nearing.?Crude prices have plummeted nearly 30% from a year ago, and a third of that drop has happened in the last week.

Given China's reopening and generally upbeat economic forecasts,?energy traders had broadly expected a rebound in prices this quarter, Gregory Brew , oil analyst for Eurasia Group , told me yesterday.?

"These recent events have shaken those expectations," Brew said.

And earlier this week, Mike Novogratz , CEO of Galaxy Digital, said the drama unfolding in the financial world has reshaped forecasts, and?it's being reflected in energy prices.?

"The commodity market is telling you, the oil market is telling you?we're heading into a recession," Novogratz said in a CNBC interview.?

To Seema Shah , chief global strategist for Principal Asset Management , the bank crisis really shouldn't have come as such a surprise, given the Fed's rapid withdrawal of liquidity over the last year.

"Until this week, markets had broadly ignored the threats that tightening policy was starting to uncover," Shah wrote in a note Thursday. "The latest turmoil, however, has quickly reminded investors that risk assets simply cannot escape the wrath of monetary tightening."

How has the bank crisis impacted your outlook for a recession? Let us know in the comments.

In other news:

2. There are three key questions no one has asked yet after Silicon Valley Bank's collapse.?UBS analysts shared the most critical Q and A's about the banking sector right now —?and also broke down the five top bank stocks to buy amid the chaos.?

3. These five books are must-reads for anyone looking to get started in real estate,?according to an expert who's interviewed hundreds of top investors. It's important to learn tried and tested strategies from others if you want to match their success —?and these top reads can get you there.

4. Nancy Davis created a buzzy ETF that's helped investors profit from rising inflation.?She explained why you should be prepared for more interest-rate volatility as fears of a financial crisis rise.?Get the full details.

5. Credit Suisse stock rallied Thursday after receiving a lifeline from the Swiss National Bank.??Early on Friday, the Swiss lender's Zurich-listed shares were down 4% after logging big losses earlier this week.?More on that here.

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