Economic resilience reduces recession risks, Goldman Sachs says US stocks should "buy on dips" until the end of the year

Goldman Sachs' strategist team expects global stock markets to continue their upward trend before the end of the year, based on the resilience of the U.S. economy, supportive valuation levels, and the Federal Reserve's dovish shift, and recommends that investors adopt a "buy on dips" strategy for stocks.

In the latest report, the strategists upgraded their rating for U.S. stocks to overweight over a three-month period, citing strong earnings growth, the Federal Reserve's accommodative policies without triggering a recession, and global fiscal policy easing. Goldman Sachs strategists believe that stock assets typically perform well in a post-cycle economic slowdown phase with strong policy support.

This bullish stance echoes the current market optimism. Thanks to expectations that the Federal Reserve will cut interest rates in a timely manner to avoid an economic recession, as well as the boost from the artificial intelligence boom for tech giants, global stock markets have previously climbed to historic highs.

Meanwhile, Goldman Sachs downgraded its credit rating from neutral to underweight but maintained a bullish recommendation for stocks over the next 12 months. The institution believes that while stock valuations may exceed current levels, this poses constraints on credit.

Accommodative Policies Support Bullish Outlook

Goldman Sachs strategists believe that the current macro environment is favorable for the stock market. They analyze that, in the context of manageable recession risks, policy support is the key driving force behind the stock market's rise.

"Strong earnings growth, the Federal Reserve's accommodative policies without triggering a recession, and global fiscal easing will continue to support the stock market. Given the stable recession risks, we will buy stocks on dips before the end of the year."

Previously, Goldman Sachs' U.S. strategists had raised their three-month target for the S&P 500 index to 6,800 points, expecting about a 2% upside potential.

Additionally, the team maintained a bullish recommendation for stocks over the next 12 months. For credit assets, Goldman Sachs believes that although they are under pressure in the short term, their pessimism has decreased over a 12-month horizon due to relatively low recession risks and favorable supply-demand dynamics.

Risks Remain, Emphasizing Diversified Allocation

Despite issuing a bullish short-term recommendation, the Goldman Sachs team also warned that the market is not without risks. They pointed out that there remains a risk of unexpected shocks to economic growth or interest rates in the short term, and investors need to stay vigilant.

As the U.S. labor market begins to cool and the potential impacts of global tariffs loom, the upcoming corporate earnings season will provide important clues for the market. According to data compiled by Bloomberg, analysts expect S&P 500 constituent companies to report a year-on-year earnings growth of 7.1% in the third quarter, which would be the smallest increase in two years and could test market expectations.

To address potential risks, the team emphasized the importance of diversified allocation. The report reiterated a preference for diversified investments in international markets and maintained a neutral stance across different regions to avoid concentrating all risk exposure in a single market