Goldman Sachs Upgrades Global Equities Back to Overweight, Raises Bonds to Overweight Over Medium-to-Long Term
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Goldman Sachs upgraded both stocks and bonds in a single move — equities back to overweight on a 3-month horizon, bonds up to overweight on 12 months — betting that fading inflation and near-peak rate hikes are tilting the odds for balanced portfolios.
What is Goldman's risk-appetite gauge saying?
Goldman's Risk Appetite Indicator (RAI) — a composite reading of how willing markets are to take risk — plunged to zero over the past two weeks from elevated levels.
Its monetary-policy sub-component (RAI PC2) has fallen to one of its lowest readings since 2000; the last comparable print was in 2022.
This means → market fear of further hikes has been compressed to an extreme. Historically, reaching this extreme has improved the return odds for both stocks and bonds — because rate pressure has little room left to escalate.
Why go back to overweight on equities now?
The MSCI World Index's 12-month forward P/E has fallen nearly 20% year-to-date — a rare, deep de-rating for this stage of the cycle.
Goldman's US equity team forecasts 18% S&P 500 earnings growth in 2027 and expects Q3 results to beat expectations in both the US and Europe.
In plain terms = prices dropped but companies are still making money; valuations got cheaper, and the odds heading into earnings season are much better than before.
If rates ease and AI applications accelerate real revenue gains, there is room for multiple expansion on top of earnings growth.
Which regions and styles does Goldman prefer?
Regions: overweight Asia and the US, underweight Europe.
Style: a "barbell" — one end in AI-beneficiary tech stocks, the other in high-dividend, low-volatility defensives poised to gain when rates eventually fall.
In plain terms = bet on both ends — offense through AI, defense through income stocks that rally when borrowing costs drop.
Key near-term downside risks: further rises in rates and energy prices, plus US midterm-election uncertainty lifting equity volatility.
Why upgrade bonds from neutral to overweight?
Goldman raised its 12-month bond rating to overweight, calling it a major strategic shift.
Goldman economists see the Fed, ECB and Bank of England each with only one hike left, likely followed by cuts next year.
Markets, however, are pricing in more than three Fed hikes, at least two from the ECB and nearly four from the BoE — well above Goldman's base case.
This means → if Goldman is right, the excess hikes priced in will be "squeezed out," pushing bond prices higher. That asymmetry is the core reason for the upgrade.
Why underweight credit and prefer equities instead?
Goldman cut its 3-month credit rating to underweight and explicitly favors equities over credit.
Even after recent spread widening, credit spreads as a share of all-in yield remain at historic lows — in the US investment-grade index, spreads account for just 15% of total yield versus a recent average of roughly 45%.
In plain terms = the "extra compensation" for owning corporate bonds is paper-thin — you bear default risk but earn far less excess return than history would suggest is fair.
What does the "Goldilocks" scenario mean for a 60/40 portfolio?
Goldman sees nominal growth momentum nearing its peak, driven mainly by inflation normalizing rather than real growth slowing.
This reflects a "Goldilocks" macro backdrop — not too hot, not too cold — which historically has been the best environment for 60/40 balanced portfolios.
Goldman's model shows 60/40 drawdown risk over the next 12 months has fallen to the low end of its historical range, while the probability of a strong rally (up more than 20% in 12 months) sits near the long-run unconditional average.
The VIX remains near 15, but rate volatility (the MOVE index) relative to equity volatility has climbed to its highest since 2024 — a divergence worth watching. Whether bonds can shift from drag to effective hedge depends on inflation fading and the rate-cut path materializing.
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