Goldman Sachs Shifts to Bullish Outlook on Stocks Amid Low Recession Threat

• Goldman Sachs (GS) strategists recommend an ‘o’verweight’ position on global equities over the next three months, anticipating a rally extension to year-end fueled by U.S. economic resilience, supportive valuations, and Federal Reserve easing.
• They forecast the S&P 500 (SPX) reaching 6,800 points in three months, supported by 7.1% year-over-year earnings growth in the third quarter and artificial intelligence momentum, while advising to buy any dips.
• Credit is downgraded to ‘underweight’ short-term due to valuation constraints, with a neutral 12-month view; the firm emphasizes international diversification amid risks from labor cooling and tariffs.

Goldman Sachs Group Inc. (GS) strategists have issued a compelling case for extending the current rally in global equities through year-end, driven by a combination of resilient economic conditions in the United States, attractive valuations, and a dovish shift from the Federal Reserve. This outlook, as noted by Bloomberg, underscores the firm’s confidence in stocks as a preferred asset class amid late-cycle dynamics, where historical patterns show equities thriving when central bank support aligns with moderating growth pressures.

At the core of this bullish stance is the expectation of sustained earnings momentum, bolstered by Federal Reserve rate cuts that preempt a downturn. The strategists, led by Christian Mueller-Glissmann, have shifted to an ‘overweight’ position on equities over a three-month horizon, emphasizing that such environments – marked by policy easing without recession – have consistently rewarded investors. They project the S&P 500 (SPX) to climb another 2% to reach 6,800 points in that timeframe, reflecting optimism around artificial intelligence advancements that continue to propel technology leaders and elevate broader market sentiment. This aligns with a wave of upward revisions from U.S. forecasters, who see AI as a durable catalyst for productivity gains and corporate profitability.

Over a longer 12-month view, Goldman maintains a strongly positive recommendation on equities, advocating for buying any near-term dips as recession probabilities remain contained. This perspective draws on global fiscal easing and robust earnings trajectories, with analysts anticipating S&P 500 profits to expand 7.1% year-over-year in the third quarter – the modest pace signaling a normalization rather than distress, though the smallest in two years. Such growth, even tempered, provides a solid foundation in a landscape where U.S. economic indicators like consumer spending and job creation hold firm despite cooling in the labor market.

In contrast, the firm has adopted a more cautious tone on credit markets, downgrading to ‘underweight’ from ‘neutral’ for the short term due to valuation constraints that limit upside potential relative to equities. While equity multiples may stretch further in this supportive regime, credit spreads appear vulnerable to any abrupt shifts. That said, the 12-month outlook for credit softens to neutral, supported by low recession odds and a favorable supply-demand balance that could stabilize yields.

Broader market forces amplify these themes. The Federal Reserve’s proactive rate reductions, initiated to cushion against slowdown risks, have fueled record highs across global indices, with technology’s AI-driven surge spilling over into diversified sectors. Yet, vigilance is warranted: upcoming corporate earnings will offer critical insights into tariff impacts and labor softening, potentially testing the rally’s resilience. Goldman advises neutrality across regions while prioritizing international diversification to mitigate localized shocks, such as unexpected growth deceleration or rate surprises.

This strategic framework from Goldman Sachs reinforces a tactical opportunity in equities, where policy tailwinds and earnings durability outweigh transient headwinds, positioning investors to capitalize on the momentum heading into year-end.

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