Synopsis:

Goldman Sachs' asset allocation team maintains a neutral stance on equities and prefers to stay overweight in cash. Despite progress in US trade negotiations, tariffs remain significantly elevated and macroeconomic risks persist, capping equity upside and supporting a cautious positioning.

Key Points:

• Tariffs Remain Inflationary:
  Even after recent easing, the US effective tariff rate stands at 13%, well above pre-Liberation Day levels. This continues to pressure inflation and complicates the Fed’s rate cut timing.

• Shift in Fed Expectations:
  Goldman now sees the Fed beginning its rate cut cycle in December rather than July, with cuts spaced at alternate meetings—not sequentially—highlighting more cautious policy normalization.

• Equities Likely Range-Bound:
  The recent correction in equities fits the profile of an ‘event-driven’ bear market. Historically, such episodes result in flat returns in the near term, limiting upside potential.

• Recession Fears Linger:
  Hard data remains fragile, and any further deterioration could increase the perceived risk of recession, potentially triggering renewed equity market stress.

• Cash Over Equities:
  With their Risk Appetite Indicator (RAI) only modestly higher at 0.5%, Goldman prefers cash over equities, emphasizing flexibility and downside protection.

Conclusion:

Goldman Sachs sees limited upside for equities in the near term, given ongoing inflation risks, delayed Fed cuts, and fragile growth momentum. Their strategy reflects a defensive tilt, with a continued preference for cash in a volatile macro environment.