Goldman Sachs has upgraded its recommendation on stocks, while expecting long-term growth in bonds

Goldman Sachs has increased its investment stance on equities for the next three months back to "Overweight," while maintaining the same recommendation for bonds on a 12-month horizon. According to the bank's assessment, the recent correction in asset prices has created more attractive conditions for investment, particularly ahead of third-quarter earnings releases.

According to the bank's strategist, Christian Mueller-Glissmann, the rally in risk assets has stalled since the summer, as rising interest rates and higher energy prices have partially offset the positive effect of corporate earnings growth.

Although corporate earnings have so far been satisfactory, the global equity market is largely moving within a narrow range. Pressure is particularly evident in sectors sensitive to interest rate changes, including small-cap companies, real estate, and infrastructure.

High yields have also intensified pressure on the credit market. Corporate bond spreads have widened, while eurozone sovereign debt risks have been repriced. According to Goldman Sachs's assessment, despite the pressure on equities, corporate earnings growth remains a supportive factor. At the same time, lower valuations have improved the investment appeal of equities ahead of third-quarter reports.

On the fixed income side, the bank is increasingly positive on longer-duration securities over the medium term. Goldman Sachs expects that, alongside the normalization of inflation and less hawkish expectations for central bank rate hikes, such bonds will gain more value. In the short-term strategy, however, the bank still favors relatively shorter-duration bonds and continues to maintain an overweight cash position.

The bank's baseline macroeconomic scenario remains positive: economic growth is resilient, recession risk is low, and inflationary pressure is gradually easing toward 2027. Goldman Sachs calls this environment a "Goldilocks" scenario — a situation in which the economy grows while inflation moderates.

"In our view, bonds should gradually shift from being a drag on the portfolio to serving as a hedge against risks," Mueller-Glissmann noted.

Goldman Sachs continues to favor equities over corporate credit, as it believes credit spreads remain low relative to overall bond yields. In stock selection, the bank favors a balanced approach: on one hand, companies benefiting from the development of artificial intelligence, and on the other, selected high-dividend, low-volatility stocks that are sensitive to interest rates.

Despite a relatively optimistic long-term outlook, the bank expects market volatility in the short term. It cites interest rate instability, tensions in the Middle East, and uncertainty related to the US midterm elections as the reasons for this.

According to the bank's strategist, investors can use call options to selectively increase their equity positions, although maintaining a certain portion of cash in the portfolio remains important. Additionally, interest rate and currency hedging instruments may serve as a means of protection against a sharp tightening of financial conditions.