Goldman Sachs Remain Overweight Cash, Neutral Elsewhere

Goldman write “since August equities have sold off alongside bonds again - the equity/bond correlation has turned sharply positive and 60/40 portfolios had another drawdown. The cumulative real total return drawdown of a 60/40 portfolio since the end of 2021 is more than 20% and the risk of a 'lost decade' remains elevated.”

• “While valuations have reset somewhat, this has been mostly due to higher bond yields: equity valuations remain elevated, helped by the U.S. soft landing and U.S. tech stocks. This, coupled with little cyclical upside and continued policy tightening, results in a continued poor risk/reward for 60/40 portfolios with less potential for a strong recovery and still above-average drawdown risk.”
• “We remain OW cash and otherwise neutral in our asset allocation (OW cash, neutral equity/credit/bonds/commodities). We expect low returns across assets and the competition from cash remains high. As longer-dated yields are finding their new equilibrium and with our baseline macro view of no U.S. recession, 60/40 portfolios should stabilise in Q4. However, if growth momentum turns much more negative the drawdown could deepen, led by equities.”