Key facts
- Goldman Sachs strategists see a 'Goldilocks' scenario where economic growth is neither too hot nor too cold, fueling investor optimism while keeping inflation in check.
- The bank has moved to an overweight stance on stocks for the next three months and on bonds for the next 12 months.
- Goldman Sachs expects third-quarter earnings to surprise to the upside.
- The bank estimates the S&P 500 will post 18% earnings growth in 2027, excluding 'other income'.
- Goldman Sachs strategists believe inflation is close to peaking, with market-based inflation momentum dropping sharply in the second quarter.
- Consumer price growth held steady in August at a 3.4% year-over-year pace.
Goldman Sachs strategists believe a 'Goldilocks' scenario, characterized by economic growth that is neither too hot nor too cold, is developing and could lead to fresh gains in both stocks and bonds. This scenario, where the economy grows at a pace sufficient to fuel investor optimism while keeping inflation in check, is seen as supportive for balanced portfolios.
The bank has shifted its stance, moving to an overweight position on stocks for the next three months and on bonds for the next 12 months. This adjustment is based on a constructive macro outlook, with expectations for healthy economic growth, low recession risk, and moderating inflation momentum into 2027. Strategists also anticipate earnings to surprise positively in the third quarter, estimating 18% growth for the S&P 500 in 2027, excluding 'other income'.
While some strategists had previously dismissed the possibility of a Goldilocks scenario due to elevated inflation and a significant sell-off in government bonds that pushed yields to multi-decade highs, Goldman Sachs sees inflation as nearing its peak. Market-based inflation momentum reportedly dropped sharply in the second quarter, and consumer price growth held steady at 3.4% year-over-year in August.
Underlying economic indicators suggest continued strong growth, with the Atlanta Fed's GDPNow estimate projecting 3.6% growth for the third quarter. The job market has also shown resilience, with robust job gains in August and an unemployment rate near historic lows at 4.2% in September.
Goldman Sachs noted that a classic 60/40 portfolio tends to perform best when inflation is falling and sees less downside risk for this mix over the next year. The bank favors a barbell strategy, balancing high-growth global tech stocks with defensive, rate-sensitive, or 'bond proxy' stocks.