Goldman Sachs traders on the "April big rebound": It's hard to "call the top," expecting U.S. stocks to continue to rise slowly

Josh Schiffrin, a top trader at Goldman Sachs who accurately predicted a significant rebound in the U.S. stock market during the most pessimistic times in April, has spoken out again. He believes that although bubbles have emerged in some areas, the upward trend of the U.S. stock market has not yet ended.

For investors, the core impact is: they should continue to align with the market's slow upward trend, but given that valuations are high and volatility is low, it is wise to take some hedging or "insurance" measures. Schiffrin's core judgment is that "predicting the top is very difficult," and rather than risking a guess at the peak, it is better to wait for the market trend to confirm a downturn before taking action.

Additionally, he clearly pointed out that the Federal Reserve's rate cut of 25 basis points in September is a "done deal"; in the long term, the average federal funds rate over the next five years will be below 3%, which makes him optimistic about 5-year U.S. Treasury bonds. Contrary to mainstream market views, he believes that the possibility of the Bank of Japan raising interest rates in October is underestimated. At the same time, he insists that the dollar will resume a path of structural depreciation, which may shake its status as a traditional safe-haven asset.

Federal Reserve Policy: September's 25 Basis Point Rate Cut is a Foregone Conclusion

Goldman Sachs Chief Risk Officer Josh Schiffrin believes that the Federal Reserve's rate cut in September is almost a certain event. However, he also pointed out that the likelihood of a 50 basis point cut is extremely low. His reasoning is that the current federal funds rate is much closer to the "neutral rate" level that the Federal Reserve considers compared to last September; at the same time, tariffs and survey-based inflation expectation indicators still pose inflation risks.

Schiffrin also mentioned that in the June meeting, the Federal Reserve's median forecast for the unemployment rate in the fourth quarter of 2025 was 4.5%, indicating that policymakers have anticipated weakness in the labor market. Therefore, he expects the Federal Reserve to cut rates by 25 basis points, with subsequent debates focusing on the pace of future rate cuts. He believes that Federal Reserve Chairman Jerome Powell's overall message will be that, given the new risks facing the labor market, it is prudent to cautiously lower the restrictive level of policy while closely monitoring data to assess subsequent actions.

Bond Market: Favoring 5-Year U.S. Treasuries, Long-Term Rates to Decline

In terms of bond strategy, Schiffrin's views have subtly shifted. He was once a staunch advocate of "steepening the curve" (betting on the widening spread between long and short-term bonds), but now he is more inclined to directly go long on 5-year U.S. Treasuries.

The basis for this judgment is his prediction that "the average federal funds rate over the next five years will be below 3%" and that the likelihood of this rate averaging above 4% is very low. Based on this, he believes that 5-year U.S. Treasuries are attractive in the yield range of 3.75% to 4%. Furthermore, he believes that if the economy weakens, short-term government bonds will provide effective hedging for risk asset portfolios, which is a confidence he does not have in the dollar.

Bank of Japan: The Market Underestimates the Risk of an October Rate Hike

Schiffrin's another strong view in the interest rate market comes from Japan, where he believes the market has severely underestimated the possibility of the Bank of Japan (BOJ) raising interest rates in October. This is a non-consensus view, and for this reason, he believes it contains good risk-reward opportunities.

He analyzed that the current global risk markets are at a high level, trade uncertainty has significantly decreased, the yen exchange rate is relatively weak, and Japan's real interest rates are in a deeply negative range, all of which create a "window" for the BOJ to take action. He believes that the September action was too early, but October, as a meeting to release economic outlooks, may be just the right timing.

U.S. Dollar: Structural Depreciation Trend to Resume

Regarding the U.S. dollar, Schiffrin continues to believe it is on a path of structural depreciation. Although the dollar's performance has stagnated recently, he expects the depreciation trend to eventually resume.

Reasons supporting his bearish outlook on the dollar include: the U.S. needs to finance its massive fiscal deficit, dollar asset valuations remain relatively high, and the interest rate differential between the U.S. and other economies is expected to narrow. A crucial factor is correlation—he believes that when the market is under pressure, the dollar may no longer be a reliable safe haven and could even weaken in sync with risk markets.

U.S. Stock Outlook: Upward Trend but Caution on High Valuations

Schiffrin's view on U.S. stocks is cautiously optimistic. He acknowledges that the current market trend seems to still be upward, with main driving forces including: overall good economic performance, reduced trade policy uncertainty, impending monetary policy easing, and sustained enthusiasm for artificial intelligence (AI).

However, he also points out the risks: "Although some bubbles may have emerged in certain areas of the market," and "overall valuations are high." Given the current low implied volatility, his direct advice is that "it is reasonable to buy some insurance." His statement, "Calling tops is hard – better to go with the break lower, if and when it comes," succinctly summarizes his operational thinking regarding the current market.

Risk Warning and Disclaimer

Markets are risky, and investment should be cautious. This article does not constitute personal investment advice and does not take into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at one's own risk