​Goldman: Clients expect negative stock returns in 2016

If Goldman Sachs' clients are right, investors are in for a rocky 2016.

The investment bank says that a majority of its clients are braced for negative equity returns this year, while more than a third expect cash to post the highest risk-adjusted return of any asset class in 2016. That means that many are preparing for a year when investments in cash will fare better than in stocks, bonds or any assets after accounting for risk.

That may be particularly startling when one remembers that cash is a lackluster strategy in a low interest-rate environment. But Goldman Sachs chief U.S. equity strategist David Kostin said in a research note that the firm's clients may be "now-casting," or projecting future results based on the equity market's dismal returns so far this year.

"Fund managers are fearful that negative animal spirits have taken hold in the global economy and a recession is looming," Kostin wrote in the note.

Both the S&P 500 (SPX) and Dow Jones Industrial Average (DJI) have slipped more than 7 percent since the start of the year, dampening investors' spirits and confounding the experts, who are pointing fingers at everything from the Federal Reserve's December interest rate hike to China's slowing economy.

Yet there are positive signs that undercut the gloomy outlook, especially when it comes to recession fears, Kostin noted.

"Quantitative and qualitative measures of consumer activity suggest spending will continue and the current economic expansion will persist," said the note, which pointed to January retail sales as an indication that the "U.S. consumer is still spending."

Credit card and bank companies are also reporting that consumer activity "remains solid," with Global Payments noting same-store sales growth of 2 percent to 3 percent, helped partly by lower gas prices.

Regular folks are giving mixed feedback to pollsters. Consumer optimism fell to its lowest since March 2015, the Association for Convenience & Fuel Retailing said last week. Only one out of five consumers said they plan to spend more in February, despite the savings from lower gas prices, the group added. But the Conference Board's Consumer Confidence Index found consumers feeling rosier in January than they had in December.

"As the consumer goes, so goes the economy . . . and the consumer is still spending," Kostin noted.