According to Goldman Sachs, there is a 25% risk of a recession within the next 12 months, accompanied by concerns about stubborn inflation. Due to these factors, the Wall Street bank has adopted a neutral asset allocation stance. In its advisory to investors, Goldman Sachs (NYSE:GS) suggests overweighting cash and commodities while maintaining a neutral position on equities, bonds, and credit for the next year.
According to Goldman Sachs in a client note, the risk of a US recession remains elevated, with our economists assigning a subjective probability of 25% over the next 12 months. Additionally, inflation might prove to be persistently sticky, leading to unexpected hawkish moves by central banks.
The firm further emphasized that although their economists foresee a soft landing with inflation returning to normal levels, the late-cycle risks continue to loom, resulting in compressed risk premia. Consequently, Goldman Sachs anticipates equities to remain range-bound and relatively stagnant, while credit is expected to offer lower total return potential compared to cash.
During the trading session on Friday, the S&P 500 index, along with its corresponding exchange-traded funds (ETFs) such as the S&P 500 ETF Trust (NYSEARCA:SPY), the iShares Core S&P 500 ETF (NYSEARCA:IVV), and the Vanguard S&P 500 ETF (NYSEARCA:VOO), experienced a modest increase of over 0.3%. This pushed the benchmark index further above the 4,500 level, which Goldman Sachs considers as their baseline projection for the year-end.
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Author Faith Yakubu 
