Stock markets are pricing equities on sentiment that a recession will strike the economy, and although growth will remain sluggish, a contraction is "unlikely" occur, says Goldman Sachs Senior Strategist Abby Joseph Cohen.
"Let’s be very clear, there are some fundamental worries," Cohen tells CNBC. "But our feeling is the valuation of the U.S. stock market is already pricing in a rather ugly scenario."
Corporate balance sheets are strong, companies have cash and are able buy and sell other companies — even hire more if they wanted to — which doesn’t reflect the mood of many on Wall Street, Cohen says.
Investor need to remember to look to the long-term instead of valuing assets based on short-term pressures.
"It’s not quite as frightening as the minute-to-minute analysis that many other people need to be paying great attention to,” Cohen says.
Goldman Sachs, meanwhile, has cut its estimates for U.S. growth in the second half of this year to between 1 percent and 1.5 percent, as it sees the economy "losing further momentum," Reuters reports.
Some economists fear the country is due for a double-dip recession, where the economy falls into recession, emerges a bit as it has done in the last two years, and then falls back into contraction.
Some economists worry that fears of a double-dip alone are enough to drive the economy back into recession, where without fear, the economy would have continued along the path of recovery, a sort of self-fulfilling prophecy.
“Even if conditions themselves aren’t that horrible, if sentiment gets bad enough, they could turn mediocre economic fundamentals into negative ones,” says Josh Feinman, global chief economist at DB Advisors, Deutsche Bank’s institutional asset management arm, according to Fox Business.
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