Goldman Sachs strategists have recently highlighted two potential shifts in the risk landscape that have implications for investors.
The first shift is the broadening of global growth.
Over the past few months, global growth has expanded, enhancing the performance of equity markets and cyclical assets. This trend has also contributed to increased yields on bonds, but it has concurrently acted to restrain the strength of the US dollar.
The second shift, easing inflation fears, is yet to materialize.
Inflation remains strong in the US, adding upward pressure on US interest rates. Goldman notes that the persistence of inflation has provided the first real challenge to equity markets in nearly six months and has accentuated the divergence between the US and other major economies.
Amidst these shifts, geopolitical risks remain in the spotlight, increasing the complexity of the current risk environment.
Despite this, Goldman maintains a view that the anticipated inflation relief “has likely been delayed, not destroyed.” For that reason, strategists expect a more constructive equity backdrop to reemerge gradually over time.
However, they also caution that the market remains vulnerable to the risk of further sticky inflation news alongside a strong US economy, which could lead to a loss of confidence in an extended easing cycle.
As a result, while Goldman sees a potential opportunity to adopt a more aggressive stance on equities in the coming weeks, they remain cautious about engaging in rate markets from a long position due to the strong nominal growth.
“We continue to expect wider US rate spreads against other DM economies and to like the protection offered by USD upside,” the strategists noted.
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