If you ask me, the more people who think we will have a recession, the better. But more on that in a second.
Brokerage extraordinaire Goldman Sachs
Goldman's chief economist, Jan Hatzius, said earlier this week that the U.S. might be in a recession already, and if it's not, it will fall into one by this year's second quarter. He also said he expects the downturn to be modest and that growth will resume by the end of the year.
I notice two factors here. First, about interest rates: Hatzius suggested the weakening economy would force the Fed to act and bring down the federal funds rate another 1.75% from today's 4.25%. Yesterday, Fed chief Ben Bernanke stepped up to indicate that the Fed is prepared to cut rates as necessary to prop up the economy. Second, let's not forget that what Goldman says and what the government does may not be all that far apart. After all, Treasury Secretary Hank Paulson is a former CEO of Goldman.
What's important is that the more agreement we get on the reality of a recession, the better. While recessions are bad for companies, expectations of recessions are bad for stocks. The further we get from analysts projecting recession for the future and the more we plunge into actual recession, the faster we'll see stocks start to recover. Crazy, I know.
Along with the economic outlook, Goldman also updated its sector outlooks. It suggested overweighting health care, consumer staples, energy, and utilities and holding off on consumer discretionary, financials, industrials, materials, and tech.
In other words, stock up on Coca-Cola
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Fool contributor Matt Koppenheffer does not own shares in any company mentioned. Coca-Cola is a Motley Fool Inside Value recommendation, and you can try that newsletter free for 30 days. The Fool's disclosure policy has never once been caught with its pants down. Of course, it doesn't actually wear pants ...