tl;dr
Goldman Sachs predicts a cautiously optimistic outlook for US stocks in H2 2023, citing policy easing and historical precedents. However, diverging sentiments between equity and fixed-income markets create uncertainty, with upcoming data critical to determining which investors are correct.
**Goldman Sachs Bulls on US Stocks Amid Policy Support and Economic Contradictions**
Goldman Sachs has issued a cautiously optimistic outlook for U.S. stocks in the second half of the year, citing favorable macroeconomic conditions and accelerating monetary and fiscal policy easing. The bank’s analysts, led by Christian Mueller-Glissmann, head of asset allocation research, argue that while the business cycle slowdown persists, the risk of a recession remains low, creating a supportive environment for risk assets.
Mueller-Glissmann highlighted that historical precedents—such as the late 1990s and mid-1960s—show equities historically outperform during late-stage economic slowdowns when policy support is in place and recession risks are contained. “The combination of easing monetary and fiscal policies, alongside a resilient economy, continues to provide a tailwind for risk assets,” he noted. This perspective underscores the bank’s belief that markets could see further gains as policymakers navigate the current economic landscape.
However, the outlook is not universally shared across asset classes. Shawn Tuteja, a Goldman Sachs managing director overseeing ETF and volatility trading, pointed to a growing divergence between equity and fixed-income investors. While bond markets have priced in significant Federal Reserve rate cuts, driven by concerns over a potential economic slowdown, equity markets have continued to climb, with the S&P 500 hitting record highs.
Tuteja noted that speculative and low-quality stocks have led the recent rally, reflecting investors’ confidence that the Fed will continue cutting rates even as the economy shows signs of resilience. “Equity investors seem to believe we’ll ‘thread the needle’—that the Fed’s rate cuts will support an economy stronger than recent jobs data suggests, potentially reaccelerating in 2026 due to fiscal stimulus,” he said.
In contrast, fixed-income investors are more pessimistic, with declining bond yields signaling expectations of further rate cuts amid fears of weaker employment data. This tug-of-war between markets has created a fragile balance, with Tuteja emphasizing that upcoming economic data will be critical. “Each data release will be scrutinized intensely, as it could determine whether equity or fixed-income investors are correct in their assessments,” he added.
As the year progresses, Goldman Sachs’ analysis suggests that the interplay between policy support, economic resilience, and market sentiment will remain central to the performance of U.S. stocks. With both optimism and caution evident, investors are advised to monitor key indicators closely, as the path forward remains uncertain.