Market Pulse May
Our base case is a non-recessionary global slowdown, but it is a close call. In the US, we would look for early signals in core retail sales, initial jobless claims, and despite its recent track record, measures of consumer and business sentiment. Reliable confirming signals are likely to be found in manufacturing production, WARN layoff notices, and the U3 unemployment rate.
The tariff shock complicates the outlook for the Fed, given the tension between a downsized growth and upsized inflation shock. Most Fed speakers highlighted the importance of keeping inflation expectations anchored and have endorsed a cautious approach towards balancing their dual mandate. We expect easier accommodation from Europe, with the ECB delivering sequential 25bp cuts until the policy rate reaches 1.5% in September.
Economist forecasts of recession risk are highly dependent on trade and tariff outcomes, with GIR estimating a moderate de-escalation that implies recession odds of 45%. Equities and rates are pricing similar risk relative to historical market performance during periods of recession. However, credit markets are potentially underpricing risk with spreads at ~15% of historical average wides.
Chart of the Month: Source: Bloomberg and Goldman Sachs Asset Management. As of April 30, 2025. Chart shows the peak-to-trough change of the S&P 500 Index, Federal Funds Rate, and ICE BofA US High Yield Index Option-Adjusted Spreads around the last six US recessions.
Source: Goldman Sachs Asset Management, GIR, and MSCI. As of May 2, 2025. “We/Our” refers to Goldman Sachs Asset Management. The macro and market views expressed may differ from those of GIR and other divisions of Goldman Sachs and its affiliates. Please see additional disclosures at the end of this page. This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. The economic and market forecasts presented herein are for informational purposes as of the date of this page. There can be no assurance that the forecasts will be achieved. Past performance does not predict future returns and does not guarantee future results, which may vary.
Ex-US equity outperformance may still have staying power. We have long believed in identifying global wealth creators and secular growth stories. This view is unchanged, but non-US beta may have a few sustainable tailwinds as well. USD weakness, asset flows, and structurally higher dividend yields are more than a trade, but a trend in our view.
Treasury disruptions expose underlying risks. Long rates are likely to stay elevated as markets worry about: 1) an inflation-constrained Fed, 2) illiquidity and basis unwind, 3) waning foreign demand from overallocated positioning, and 4) US fiscal sustainability. In this environment, UK gilt and EUR rates may benefit as investors seek opportunities for diversification outside the US, while still capitalizing on high yields, particularly in the UK.
USD weakness has detached from interest rate differentials, hinting at a deeper structural change. The desire to reduce US allocations may prove durable. Traditional non-dollar safe havens like JPY, CHF and gold should continue to perform well.
Asset Class Forecasts: Price targets of major asset classes are provided by Goldman Sachs Global Investment Research. Source: “The US outperforms global markets on softer trade commentary.” As of May 2, 2025.
“We/Our” refers to Goldman Sachs Asset Management. The economic and market forecasts presented herein are for informational purposes as of the date of this publication. There is no guarantee that objectives will be met. There can be no assurance that forecasts will be achieved. Diversification does not protect an investor from market risk and does not ensure a profit. Goldman Sachs does not provide accounting, tax or legal advice. Please see additional disclosures at the end of this page. Past performance does not predict future returns and does not guarantee future results, which may vary.
Navigating Market Volatility
In 2025, US equity investors have experienced the second-fastest 20% decline, followed by the third-best daily rally post-WWII. Record high trading volumes against record low liquidity levels have amplified intraday and day-to-day market moves. Meanwhile policy risk leads to a wide range of potential outcomes, with both downside risk and upside potential. Against this backdrop, we remain risk aware and return ready. We believe in staying invested, being diversified, and taking advantage of opportunities for attractive entry points and volatility monetization.
Source: Bloomberg and Goldman Sachs Asset Management. As of December 31, 2024.
“We/Our” refers to Goldman Sachs Asset Management. The economic and market forecasts presented herein are for informational purposes as of the date of this publication. There is no guarantee that objectives will be met. There can be no assurance that forecasts will be achieved. Diversification does not protect an investor from market risk and does not ensure a profit Staying Invested Section Notes: Chart shows the annual S&P 500 return with and without the ten best days. Please see additional disclosures at the end of this page. Past performance does not predict future returns and does not guarantee future results, which may vary.
Last month’s market swings are a reminder that returns are driven by just a handful of days every year. In fact, since 1990, missing the 10 best trading days each year would have turned the S&P 500’s positive returns of +10.6% into annual losses of -13.2% on average. Rather than attempting to time these days, we think the successful investor will be patient enough to participate and diversified enough to withstand any drawdown.
Source: Bloomberg and Goldman Sachs Global Investment Research. As of March 31, 2025.
“We/Our” refers to Goldman Sachs Asset Management. The economic and market forecasts presented herein are for informational purposes as of the date of this publication. There is no guarantee that objectives will be met. There can be no assurance that forecasts will be achieved. Diversification does not protect an investor from market risk and does not ensure a profit. Generating Income Section Notes: Chart shows the current and historical average yields. Average refers to 2008-today, the common date of conception for all indices except the LSTA Leveraged Loan index, which starts in 2012. Please see additional disclosures at the end of this page. Past performance does not predict future returns and does not guarantee future results, which may vary.
In a volatile market environment, capturing steady income streams may help maintain portfolio stability. Active security selection and dynamic investment approaches may help investors find opportunities in credit and equity markets – the latter of which has historically paid stronger dividends outside of the US. Real estate and infrastructure may also provide yields that keep pace with inflation. Ultimately, a well-rounded income strategy may help investors navigate market uncertainties while paying dividends over the long run.
Source: Bloomberg, and Goldman Sachs Asset Management. As of March 31, 2025.
“We/Our” refers to Goldman Sachs Asset Management. The economic and market forecasts presented herein are for informational purposes as of the date of this publication. There is no guarantee that objectives will be met. There can be no assurance that forecasts will be achieved. Diversification does not protect an investor from market risk and does not ensure a profit. Diversifying Risk Section Notes: Chart shows the average monthly returns for liquid alternatives, global bonds, and cash proxy dating back to 2000. Please see additional disclosures at the end of this page. Past performance does not predict future returns and does not guarantee future results, which may vary.
For the risk-aware investor, we believe there are better options than being in cash. Current yields in core fixed income may provide attractive income and hedge potential. Liquid alternatives seek to replicate hedge funds’ ability to effectively navigate volatility. We believe equity buffer and diversification may further optimize risk-adjusted returns while providing income potential.
