Goldman Sachs: Recession fear overblown, market to gain 11%

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Very little risk of recession: UBS economist

Swelling recession fears are creating both an extended stock market sell-off and an opportunity for investors ready to pounce, according to Goldman Sachs.

The firm's strategists believe investors have become too fearful of the U.S. economy, which ended 2015 with barely any growth in the fourth quarter. A fear-driven sell-off has resulted in the slumping 10 percent from its December high, a decline Goldman felt would bring in buyers.

However, buyers have stayed away, with last week's market gains doing little to boost confidence.

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Goldman clients "almost universally expressed a desire to buy the market 10 percent lower," but have refused, owing to five main reasons, David Kostin, Goldman's chief U.S. equity strategist and others said in a note: Fear of catching the proverbial falling knife; a contraction in U.S. manufacturing and industrial activity bringing down consumers; reduced business investment from the plunge in oil prices; China's slowdown triggering global deflation; and a need for equity prices to decline even further "to offer an attractive risk-adjusted return given heightened economic and market risks."