Goldman Sachs Warns Equity Drop Is Top Risk to 2026 Economy
New York, Tuesday, 24 February 2026.
Goldman Sachs identifies a potential 10% market correction as 2026’s primary economic threat, warning this pullback could slash GDP growth by half a percentage point amid fragile consumer sentiment.
Market Vulnerability Takes Center Stage
In a note to clients released early this week, Goldman Sachs economist Pierfrancesco Mei pinpointed a sharp equity market correction as the most significant near-term downside risk to the U.S. economy in 2026 [1][5]. While the bank maintains a generally positive outlook, their analysis suggests that a sustained 10% decline in stock prices through the second quarter of this year would dampen financial conditions and consumer sentiment enough to reduce Gross Domestic Product (GDP) growth by approximately 0.5 percentage points [1][2]. This warning comes at a time of heightened market sensitivity; global investors are currently navigating a landscape of “viral doomerism,” exemplified by a widely circulated blog post from Citrini Research over the weekend of February 21, which hypothesized a catastrophic 38% market correction driven by artificial intelligence displacement [4].
Economic Projections and Policy Headwinds
Despite these cautionary flags regarding market stability, Goldman Sachs remains optimistic about the broader economic trajectory for 2026. The firm forecasts U.S. GDP will expand by 2.5% on a fourth-quarter-to-fourth-quarter basis, a figure that is 0.4 percentage points higher than the consensus estimate of 2.1% tracked by Bloomberg [2][5]. This bullish stance is largely predicated on the anticipated impact of the “One Big Beautiful Bill Act,” which analysts believe will provide business and personal tax cuts sufficient to offset the drag created by recent tariff increases [2][5]. This projected rebound follows a sluggish conclusion to 2025, where the economy slowed to a 1.4% annual growth rate in the final quarter due to a federal government closure, resulting in full-year growth of just 2.2%—the slowest pace since 2020 [2].
The Artificial Intelligence Factor
Beyond traditional market mechanics, the rapid integration of artificial intelligence represents a secondary, yet critical, risk vector for the labor market. Goldman Sachs projects that AI-driven displacement could push the unemployment rate from its current 4.3% to 4.5% by the end of 2026 [3]. Furthermore, if adoption rates accelerate beyond current baselines, this could add an additional 0.3 percentage points to the unemployment figure [3]. The volatility associated with this technological shift is already manifesting in the equity markets; on Monday, February 23, IBM saw its market value plummet by 13.5%, erasing $31 billion in value, following similar volatility in cybersecurity stocks like CrowdStrike the previous week [3]. While some experts view these fears as exaggerated, the psychological impact of potential white-collar job losses is contributing to the market’s fragility [4].
Navigating a “Perfect Storm” Scenario
The economic landscape for the remainder of 2026 will likely depend on whether these risks materialize in isolation or in tandem. Goldman analysts warn that while individual shocks might be manageable, a simultaneous convergence of a stock market sell-off, AI-induced labor displacement, and persistent tariff costs could create substantial headwinds [2][5]. Currently, the Federal Reserve has paused interest rate adjustments as of January 2026, but policymakers are expected to resume cuts later in the year [2]. Should the “perfect storm” of equity correction and labor weakness occur, Goldman suggests the central bank would likely be forced to cut rates more aggressively to stabilize the economy [2][5].