Goldman Sachs explores how investors can navigate a late-cycle environment marked by elevated valuations, shifting policy dynamics, and persistent macro uncertainty. It highlights the challenge of balancing risk and opportunity, arguing that disciplined positioning may matter more than directional bets while questioning whether traditional diversification still works in today’s regime.
Piloting Through
Goldman Sachs
Sharmin Mossavar-Rahmani
Research
106 Pages
Key Takeaways
Elevated Valuation Risks: Equity valuations sit near top decile historically, with forward P/E ratios above 90% of long-term observations, implying lower future returns and tighter margin for error.
Diversification Under Pressure: Stock-bond correlations turned positive in 2022, with both asset classes declining over 10%, challenging the traditional 60/40 portfolio’s downside protection.
Policy Driven Markets: Central bank balance sheets expanded over $8T since 2020, reinforcing liquidity’s outsized role in asset pricing and increasing sensitivity to tightening cycles.
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