A team of strategists at Goldman Sachs Group recently upgraded their rating for global stock allocations over the next three months to “overweight,” anticipating that the market rally is likely to continue until the end of the year. This decision is primarily based on three core supports: the resilience shown by the U.S. economy, the supportive force of stock valuations, and the dovish pivot signaled by the Federal Reserve. Strategists led by Christian Mueller-Glissmann pointed out that equity assets typically perform well during the late stages of an economic cycle when policy support is strong.
In their report, the team elaborated that robust corporate earnings growth, expectations for Fed easing in a non-recessionary context, and a trend towards looser global fiscal policy will continue to fuel the stock market. Given that current recession risks are manageable, they advise investors to seize buying opportunities presented by market pullbacks before year-end. This optimism has already driven global stock markets to record highs, with widespread market expectations that the Fed has initiated interest rate cuts in time to avert an economic recession. Meanwhile, renewed investment enthusiasm in the artificial intelligence sector has injected new growth momentum into tech giants, prompting several institutions, including Goldman Sachs, to raise their forecasts for the S&P 500 index. Earlier this month, Goldman Sachs’ U.S. strategists raised their three-month target for the S&P 500 to 6800 points, suggesting approximately 2% further upside.
Despite their positive view on equities, the Goldman Sachs team also highlighted risks that warrant vigilance in the short term. These risks primarily stem from potentially lower-than-expected economic growth and potential volatility in interest rate markets. As signs of cooling emerge in the U.S. labor market, focus is shifting towards the next corporate earnings season, seeking to ascertain the actual impact of global tariff policies on corporate profits. According to Bloomberg Intelligence data, analysts expect third-quarter earnings per share for S&P 500 constituents to increase by only 7.1% year-on-year, which could be the smallest growth in two years.
In terms of specific asset allocation, Goldman Sachs has adopted a more nuanced approach. In the short term, the team downgraded their rating for credit assets from “neutral” to “underweight,” believing that potential breakthroughs in equity valuations pose constraints on credit assets. However, from a medium to long-term (12-month) perspective, considering relatively low recession risks and favorable market supply-demand dynamics, their view on credit assets is less pessimistic, and they maintain a “bullish” recommendation for stocks. Regarding regional allocation, Goldman Sachs maintains a “neutral” stance and reiterates its advice to diversify risks through international asset allocation.
In a separate report, Goldman Sachs analysts Cosimo Codacci-Pisanelli and Rikin Shah issued a warning about the potential for the U.S. economy to “re-accelerate.” They believe that the possibility of the U.S. economy outperforming expectations is increasing, driven by multiple favorable factors including a resilient labor market, expectations for fiscal stimulus, and accommodative financial conditions. Goldman Sachs’ U.S. Macroeconomic Surprise Index recently surged significantly, initial jobless claims data showed positive trends, and their research department expects the U.S. third-quarter GDP growth rate to reach 2.6% on an annualized quarter-over-quarter basis.
Key factors driving this risk include: accommodative financial conditions fostered by strong performance in risk assets, expectations for interest rate cuts, and a weaker U.S. dollar; anticipated proactive fiscal policy in the first half of next year; sustained capital expenditure in the artificial intelligence field; and a solid consumer base coupled with potential impacts of deregulation.
