Goldman Sachs analysts said in a report on Tuesday that risk appetite sentiment has returned after a brief summer retreat, which will support the US stock market in the coming months.
They wrote that the US stock market will offer more attractive returns than bonds, as the economy supports higher risks in the later stages of the cycle. Goldman Sachs pointed out that in the late stage of a cycle where the economy is approaching its peak and policies are relaxed, unless the growth momentum slows down or inflation accelerates and triggers policy tightening, it is usually advantageous for risky assets.
Analysts from the bank stated that in recent months, the situation has been exactly the opposite, with the US economy accelerating, inflation easing, strong economic data, and loose policies fueling a more risk supportive environment.
In their latest report, they pointed out that in July, the bank downgraded its rating on US stocks to neutral and raised its rating on bonds to neutral, following concerns about a stock market correction caused by bullish sentiment and slowing growth momentum. However, US stocks quickly rebounded afterwards.
After the summer 'safe haven', risk assets quickly rebounded due to the Federal Reserve's mild policy adjustments and better than expected US economic data, "they wrote. Goldman Sachs analysts have now downgraded their US stock ratings back to overweight and explained that global stock markets currently face lower risks.
Goldman Sachs pointed out that as long as the economy avoids recession, the Federal Reserve's interest rate cut cycle generally tends to support risky assets. They predict that against the backdrop of strong labor market data and a significant 50 basis point interest rate cut by the Federal Reserve last month, the risk of an economic recession seems low, with the probability of a recession next year dropping to 15%.
Analysts also suggest that this risk appetite and the background of the later stages of the cycle mean that as bonds face downside risks, the stock market will benefit from higher profit growth and valuations. At the beginning of this month, David Kostin, Chief Equity Strategist at Goldman Sachs, raised the 12-month target price for the S&P 500 index to 6000 points.
Coincidentally, there is no exception. UBS analysts also have a positive outlook on the US stock market. On Tuesday, they raised their year-end target price for the S&P 500 index from 5600 points to 5850 points, while also raising their expectations for 2025 from 6000 points to 6400 points. This is the fourth time that UBS strategists have raised the target price of the index since the release of their annual outlook at the end of last year.
Montreal Bank strategist Brian Belski is the most optimistic in the year-end forecast, having previously stated that the index could soar to 6100 points by the end of this year.
However, in the above report, Goldman Sachs added that although the current environment supports higher risk investments, market volatility may still occur due to geopolitical conflicts, US elections, and unfavorable trends in economic growth and inflation.
But they said that even this uncertainty could push up risky assets.
We believe that easing uncertainty may also support high-risk assets before the end of the year - which is why we tend to favor long selective hedging rather than maintaining a stock neutral strategy, "they wrote.