Goldman Sachs strategists are warning people that the risk of a selloff in equity markets remains high because investors have not priced in any possibility of anything more than a mild recession.

Christian Mueller-Glissmann led a team of Goldman strategists who wrote a note on the threat. They wrote, “Much of the valuation de-rating this year has been due to higher rates/inflation. Unless bond yields start to decline and buffer rising equity risk premiums due to recession fears, equity valuations could decline further.”

They point out that the past six months have been among the worst halves on record for the stock markets. Inflation has proven worse than estimates, consumer sentiment has been worse than estimated, and now the Fed has begun moving more aggressively than had been predicted in response, all of which points to the fact the resultant economic slowdown could be worse than predicted. Just the S&P 500 has lost over $8 trillion in market capitalization, its worst first half since 1970.

They go on to point out there has always been the TINA mantra, which stands for There Is No Alternative to equities. However with persistent inflation fueled by chronically high energy prices, with no end in sight, and bond yields rising, suddenly there is a new potential mantra – TARA (There is A Reasonable Alternative). Mueller-Glissman goes on to say,  “As central banks are busy fighting inflation they could struggle to buffer the business cycle.”

They also point out corporate earnings will probably come under further pressure in Q2, as surging prices, a slowing economy, and retailers hesitant to build too large an inventory and consumers reticent to part with too much of their cash, all  begin to cut into margins.

And once a selloff begins, that can become contagious.