© Reuters. Goldman expects risk assets will continue to trend higher
Goldman strategists said Monday that risk assets will keep rising, driven by strong U.S. growth and slowing global inflation, outweighing concerns about high valuations.
“We think that the positive macro backdrop is still enough to dominate rich valuations,” analysts at Goldman Sachs said.
“Our economics team expects US core inflation to resume its decline, while the US growth backdrop should remain supportive and there are signs that non-US growth may be picking up too,” they added.
Analysts highlighted that the primary challenges to Goldman’s optimistic “soft landing” outlook include unexpected upticks in inflation, which could deter central banks from easing policies, or a notable decline in economic growth.
“Between the two risks, we think that higher inflation data is still the bigger risk to assets over the next couple of months, even after the worries we have recently seen,” analysts wrote in the note.
Analysts suggest that, when considering the implications of rising inflation on asset markets, an inflation surge could lead to a decrease in equity values, an appreciation of the dollar, a drop in commodity prices, and an increase in U.S. interest rates.
In the short term, concerns about additional inflation risks will be a primary focus.
Although Goldman anticipates moderately reassuring outcomes overall, the upcoming CPI report and the Federal Reserve’s FOMC meeting next week could either reignite these concerns or fail to offer enough proof to bolster confidence in the likelihood of rate cuts.
