Overview#
Goldman Sachs has stated that the risk of a deeper market downturn is currently limited, even with recent pressures affecting global assets.
Market Sentiment#
In a note from strategist Christian Mueller-Glissmann, it was highlighted that the bank’s Risk Appetite Indicator had previously moved above 1 earlier this year. However, concerns over factors such as artificial intelligence disruptions, private credit issues, rising oil prices, and geopolitical tensions in the Middle East have weakened market sentiment.
Portfolio Impact#
These shocks have impacted multi-asset portfolios, leading to an increased risk of larger drawdowns in traditional investment strategies, like the 60/40 portfolio, which typically consists of 60% stocks and 40% bonds. Despite this, Goldman Sachs maintains that the long-term risk of a bear market remains limited.
Current Market Analysis#
The bank's world portfolio proxy, which tracks approximately $300 trillion in global assets, has seen a decline of about $11 trillion, or 4%, since the onset of the conflict. However, this is considered a minor drawdown compared to historical declines, which are often associated with high inflation or major stock market crashes.
Future Outlook#
Goldman Sachs anticipates that energy prices will start to stabilize in the second quarter of the year. To address ongoing risks related to stagflation—an economic situation characterized by stagnant growth and high inflation—the firm suggests incorporating defensive equity styles and select safe assets into investment strategies. Additionally, they recommend hedging strategies, including options like equity puts and credit default swaps, to protect against potential market downturns.