Goldman Sachs, one of the most influential investment banks on Wall Street, lowered its targets for the S&P 500 and increased the odds of a U.S. recession in the coming year. Both reflect concerns abouteconomic damagefrom President Donald Trump’s tariffs.

The shift is particularly gloomy because Goldman for years has been one of the more optimistic houses when it comes to the outlook for growth—and it has been right. It was one of the few forecasters to say the Federal Reserve’s rapid interest-rate increases starting in 2022 would be unlikely to trigger a contraction.

On Sunday, two teams put out notes that pointed to dimmer prospects for stocks and the economy. Strategists led by David J. Kostin now see the S&P 500 falling 5% to 5,300 over the next three months, compared with a previous forecast for the index to be flat. In the coming 12 months, they have the index up just 6% to 5,900 compared with a previous prediction that it would gain 16%. They also lowered forecasts for earnings growth in 2025.

Separately, the economics team led by Jan Hatzius lifted the probability of a recession in the 12 months to 35% from 20%. That reflects higher assumptions for tariffs ahead of what Trump is calling “Liberation Day,” when a new raft of taxes on imported goods is set to take effect.

That will fan inflation as well as weaken growth, they said. The team of economists raised its forecast for year-end inflation to 3.5% according to the Federal Reserve’s preferred metric, the core personal consumption expenditures index. That’s well above the Fed’s 2% target and will make it difficult for Chair Jerome Powell to lower interest rates.

At the same time, Goldman’s year-end forecast for gross domestic product fell by half a point to a 1% increase. That led to the prediction for the unemployment rate to change to 4.5% from 4.2%, Hazius’s team said.

The equities team looked for silver linings. They noted that their sentiment indicator, while it has declined sharply, remains higher than the levels seen after previous major selloffs. They suggest looking for stocks with the smallest variables in earnings growth and those that don’t tend to correlate with major themes that drive market pricing.

Perhaps the most optimistic takeaway was that Goldman still sees the S&P rising over the next 12 months, even if it takes a bumpy ride to get there.