Goldman holds its bullish equity stance – with caveats

Goldman Sachs continues to advise investors to hold an overweight position in equities over the next twelve months, viewing any market pullbacks as buying opportunities rather than exit signals. This emerges from a client note by the bank's analyst Christian Mueller-Glissmann, as reported by ForexLive.

The note was published before Thursday's sharp rally on Wall Street and should be interpreted in that context.

Equity markets have largely recovered the losses from the initial shock reaction to the Middle East conflict, with major indices trading near all-time highs since mid-April. Goldman attributes this recovery primarily to strong results from the technology sector and continued growth in AI-related capital investment, which the bank says has provided a reliable earnings floor even against an uncertain macroeconomic backdrop.

High risk appetite – a double-edged sword

Despite its broadly constructive view, Goldman Sachs stops short of giving the market a clean bill of health. The bank's own risk appetite indicator has climbed above 1.2 – a level last recorded in 2021. Historically, such elevated readings are associated with lower average near-term returns and a markedly higher probability of corrections, according to the bank.

Concentrated positioning in global technology stocks reinforces the picture. Goldman describes the combination of stretched sentiment and narrow exposure as a reason for discipline rather than conviction in chasing the rally higher.

High risk appetite is not the same as safety – history shows this is precisely when markets are most vulnerable.

The Strait of Hormuz and oil prices as wildcards

The geopolitical backdrop adds further complexity to the picture. Goldman points to renewed escalation in the Middle East and the continued closure of the Strait of Hormuz as the most significant near-term downside risk factors. Further escalation could keep oil prices and bond yields elevated – two variables that are already acting as headwinds for equity valuations.

The bank's more constructive base case assumes this pressure eases, with inflation normalisation and an eventual reopening of the Strait of Hormuz. Goldman stresses, however, that this is a scenario, not a guarantee.

For Norwegian investors, the oil price linkage is particularly relevant: persistently high energy prices stemming from geopolitical turmoil will affect both the OSEBX and broader domestic macroeconomic conditions.

Recommends calibrated optimism and selective hedging

To navigate the gap between a positive 12-month outlook and a cautious near-term stance, Goldman recommends selective risk management. Put spread collars and factor diversification are highlighted as tools for managing downside exposure. Long-dated call options simultaneously offer the opportunity to participate in any potential upside without being fully exposed to short-term volatility.

Goldman's message is, in other words, calibrated optimism: maintain long positions, build in protection, and be ready to add exposure on weakness.

1.2+
Risk appetite indicator (highest since 2021)
12 months
Goldman's recommended investment horizon

Market implications

Goldman's sustained overweight on equities provides a floor for risk sentiment, but the correction warning will likely keep traders cautious about chasing further upside at current levels. The recommendation of put spread collars and long-dated call options suggests the bank anticipates volatility rather than a straightforward continuation of the rally.

It is worth noting that this client note was distributed to the market before Thursday's strong US rally – meaning the risk appetite indicator has potentially climbed even further since Goldman published its assessment.