Markets

The plunge in stocks after President Trump announced his full slate of tariffs in early April briefly met the definition of a bear market: The S&P 500 fell just under 20% from its high, and the Nasdaq dropped 23%. However, with the US and its trading partners stepping back from the tariff brink and the risk of recession easing, stocks may now be poised for further gains over the next 12 months, Goldman Sachs Research’s Chief Global Equity Strategist Peter Oppenheimer says. It remains to be seen whether global equities have genuinely escaped a bear market. Oppenheimer points out that it’s common for stocks to rally even during a prolonged downturn, and the reasons, or type, of bear market can give investors insight into the potential depth and duration of market declines. It’s still unclear whether the US and other economies will sidestep a contraction.   In the meantime, investors may benefit from greater portfolio diversification. While our analysts expect the S&P 500 index of US stocks to rally 10% in the next 12 months (as of May 30), there are signs that the dollar may weaken and there are indications of better opportunities in Europe and parts of Asia, Oppenheimer says. “We had this consistent rise in profit margins in the US in technology companies, but we think now you are beginning to see more mean reversion from high levels of profitability in some areas,” Oppenheimer says. We spoke with Oppenheimer about the different types of bear markets, where equities are trading in the economic cycle, and why portfolios may benefit from diversification in the coming months.  How do you look at the brief bear market earlier this year? People think of bear markets as binary — either you’re in one or you’re not. But actually, if you look at history, the data going back to the 1800s, you can differentiate between types of bear markets. They differ by depth and length, but also by the factors that trigger them. We’ve been able to identify three different types. The first type, which we call structural, is the worst type of bear market but fortunately also the rarest. They’re always preceded by asset bubbles of some form or another, usually backed by very high private sector debt. And when these bubbles burst, for whatever reason, it tends to trigger a deleveraging cycle and a very sharp fall in asset prices. And that usually feeds into some kind of problem in the banking sector or the real estate sector or both. The second type is cyclical, and these are the bear markets that oscillate around economic cycles. When investors anticipate a recession, stock prices fall to reflect the potential downturn in activity and profits. And ultimately, they recover as you get some kind of policy response that improves the prospect of an economic recovery. And the third type is event-driven. These are triggered by some kind of shock that derails an economic cycle, such as a war or a commodity crisis. The pandemic was an unusual event that derailed the economic cycle globally and triggered a bear market. To the extent that the recent downturn in equities has been triggered by tariffs, this is event-driven.   For an investor, why does it help to know the kind of bear market? Because it helps to set appropriate expectations. In a structural bear market, equities may fall by 50% or 60% over three or four years and take a long time, typically about a decade, to recover fully in nominal terms. Cyclical and event-driven bear markets don’t tend to vary that much in terms of the absolute price declines, typically around 25% to 30%, but the difference is the speed of this decline and the subsequent recovery — event-driven ones are just much quicker. The main difference is whether you get a recession. Sometimes shocks lead to recessions, and what starts out as a temporary drawdown can last a bit longer as that shock morphs into a recession. If this is an event-driven bear market, are we through it? One problem in trying to figure that out in real time is that bear markets of whatever description do incorporate strong rallies. It would be unusual for a bear market to fall in a straight line. We don’t know for sure whether the low in April marked the trough. At this stage we are not certain whether we are avoiding a recession. Our view is that recession risk has definitely moderated because tariffs have largely been wound back for large parts of the world and indeed, most recently, for China. Goldman Sachs economists had forecast the probability of recession at around 45% in the US over the next 12 months, and after the recent pause between China and the US, they reduced that probability to around 35%. That’s still above the usual background risk in any given year of about 15% probability of recession. Are you certain this isn’t a structural downturn? Structural downturns come about from the combination of asset bubbles with a lot of private sector leverage. I think we can put private sector leverage to one side right now. After the financial crisis, banks’ balance sheets strengthened a lot because of tighter regulation. Corporates broadly have very healthy balance sheets. And households still have pretty good balance sheets. On the valuation point, it’s true that the US equity market has a high valuation — well into the 90th percentile if we look at a historical distribution for price-to-earnings ratios. However, it is important that, at least up to now, the very high multiple has been reflective of very strong underlying fundamentals. Profits have been extremely strong in the US over the last decade or so, largely driven by the powerful rise in profitability of the largest tech companies. We don’t think that there is a speculative bubble. Is continued growth in earnings needed, though, to justify the valuations? The prospect of continued earnings growth is partly a function of what happens in the economy

Data is the foundation of the artificial intelligence revolution, but AI is also revolutionising the market for data. Developers are racing to invest billions of dollars to build the infrastructure to power vast AI systems. That rapid expansion has led to a surge in demand for data, creating the potential for companies to generate significant economic value. AI systems are typically described as having three main components — power, compute and data. These refer to the electricity required to power data centres, the chips needed to conduct computations at mind-boggling speeds, and the data necessary to train AI models. Of these critical components, it is data that is least discussed, perhaps because data centres and semiconductors are physical things you can see and touch. (It’s admittedly difficult to hold up a data packet during an onstage keynote.) But sourcing data is an essential aspect of the rapidly expanding AI ecosystem. According to some estimates, the world is running out of “organic” data, with model developers reaching the limits of publicly available data — essentially copies of the entire internet — to pre-train ever-bigger models. After AI models are constructed and pre-trained on huge data sets, they still require additional “test time compute” where a model is asked to answer specific questions or solve problems. This requires the right kind of data, which is sometimes lacking. There is a lack of sufficient training data that shows humans “showing their work” in the steps to address complex problems. This is where companies with focused, well-organised, or highly logical data sets can become newly relevant. Imagine how a textbook company might use its archives of technical manuals and coursework to train an AI system to do complex scientific processes. Recent data licensing deals show how different companies are selling access to their data to AI companies. Expect this trend to accelerate as companies get even more creative in doing so. So far, these deals have been negotiated individually with special terms, but you can imagine a marketplace — or multiple markets — for training data emerging. Synthetic data, or data created at least in part by AI systems, is a critical part of the development of large language models and has emerged as one path for expanding the set of options for developers looking for new data sets. For example, as robotic technology becomes more sophisticated, AI systems can increasingly create maps of our physical environment. Synthetic data for self-driving might involve setting up a “digital twin” of Los Angeles and having millions of “mock” vehicles navigate the city in a virtual space as training data. And it is possible that types of data that have previously been difficult to analyse or use become newly accessible and valuable with the incredible computational power of AI systems. Think about what data we’ve collected about complex systems such as weather, quantum mechanics or viral mutations. As robots can perceive entire categories of data that are imperceptible to humans, collections of video and spatial data may also suddenly have a newfound value. Tesla uses the data collected by its fleet of autonomous driving vehicles to train the AI models that power its underlying self-driving technology. And Nvidia recently announced an expansion of its robot simulation environment, where it trains its robots in a virtual, digital representation of the physical world. One of the most valuable repositories of data is human-generated data that remains locked away — proprietary research behind corporate and government firewalls. Today, the holders of this data are reluctant to make it accessible without knowing the implications. But the right structures and incentives can invite more deals. In practical terms, different companies will devise different strategies. Some will treat data as a core business asset, not a byproduct, and work to monetise it through licensing or subscriptions. Others will need to upgrade their data infrastructure to make the best use of future AI capabilities. How different jurisdictions decide to regulate AI and further regulate data usage will have profound implications for how those markets evolve — and where. Data privacy and security, questions about data provenance, ownership, authentication, are all potential new legislation areas. This period of incredible innovation and upheaval offers opportunities for the companies that get their data strategy right.

The prospects for European stocks are brightening as the region’s fiscal spending rises, the economic growth outlook improves, and interest rates are poised to fall, according to Goldman Sachs Research. On a recent call, our analysts discussed the opportunities in the broader European equity market as well as for utilities, real estate, and food retailers. What’s the outlook for the STOXX 600 index? The STOXX 600 index of large European companies is up 8.5% so far in 2025 (as of May 27). Sharon Bell, a senior strategist in Goldman Sachs Research, says that the relatively low price of European stocks compared with their US counterparts may have contributed to this surge. The STOXX 600 is forecast to rise about 3.5% to 570 in the next 12 months.    European companies that sell to their local markets are in a particularly strong position, in part because they are less exposed to foreign-currency fluctuations, Bell says. “Domestic companies don’t have that dollar exposure, they have underperformed for a long period of time, and they are trading at a deeper discount,” she says. Our economists expect the euro area economy to grow slowly this year — they forecast that the rate of real GDP growth at the end of 2025 will be just 0.9% (as of May 16). But Bell points out that the outlook for Europe’s economy looks set to improve in 2026 and beyond. This improving outlook is partly down to policy, Bell adds. “Fiscal policy, defense policy, and ultimately rate cuts by the European Central Bank are all helping to drive slightly better growth in 2026 and 2027 as well,” she says. Will European stocks outperform those in the US? In the last 15 years, large European companies have pivoted toward the American market. The proportion of STOXX 600 companies’ assets that are in the US has increased from 18% in 2013 to 30% in 2025, while around a quarter of STOXX 600 companies’ sales now come from the US. “That’s a lot of dollar exposure,” Bell says. “What does all this mean for our strategy? We think this means we’ll see a little bit more diversification away from dollar exposure,” which could benefit European assets, she adds. The outlook for European utilities in 2025 Utility stocks have rallied this year as the threat of US tariffs and concerns over a recession drove investors towards defensive stocks (companies which provide something that is likely to be in demand, regardless of the economic conditions). European utility companies rose 20% relative to Europe’s STOXX 600 index in March alone.   Alberto Gandolfi, head of European utilities research, says that signs of increasing demand for power could be driving the outperformance of European utilities. Power demand so far in 2025 is up 1% in Germany, 1.5% in Italy, and around 4% in Spain, he says. “Inflecting power demand is monumentally important, because it’s been declining for 15 years. This is completely changing the outlook for topline growth in the industry,” Gandolfi says. To gauge whether the strong outperformance of European utilities is likely to continue, Gandolfi’s team has analyzed how the sector performed in previous crises, including the bursting of the dotcom bubble, the 2019 tariffs, and the Covid pandemic. They found that utilities normally outperform other stocks by around 10-30% during periods of market stress. “Usually, you’re towards the top end of that range if two conditions are met: falling rates and a prolonged bear market. For utilities to continue to do as well as they’ve done in March and April, we would look for those features,” Gandolfi says. Is it a good time to invest in European real estate stocks? Real-estate stocks have also outperformed the broader STOXX 600 index throughout April. Jonathan Kownator, head of European real-estate research, attributes this to a combination of lower bond yields, the defensive nature of the sector, and discounted valuations for real estate stocks before the announcement of “reciprocal” tariffs by the Trump administration. The average European real-estate stock trades below 14x price/earnings (compared with about 15x for the broader Stoxx 600 Index and around 25x for the US’s S&P 500 Index, as of May 15). “We’re looking at historically low valuations for the space as a result of the significant underperformance of real estate,” Kownator explains. He adds that a high correlation with real bond yields suggests the sector is still too discounted, not even factoring in the solid European rental growth the team forecasts. Kownator also points out that domestic real estate doesn’t have a first-order tariff impact, because it faces the European market. “Within our space, thinking about the areas that have received more interest, and where we see the most resilience, German residential real estate comes to mind,” Kownator says, adding that this sub-sector is also the most sensitive to interest rates, and so it could benefit from future rate cuts. The outlook for UK supermarket stocks In the retail sector, there could be opportunities among grocers, and in UK food-retail stocks in particular, says Richard Edwards, head of Europe consumer research. Strong inflation, a growing population, and a broad shift from eating out to eating at home all make the UK a particularly attractive market for investors in this sector, he says. Edwards adds that the incumbents in the UK grocery sector are investing heavily in their own operations in response to pricing pressure from smaller retailers trying to grow their market share by lowering prices. He points to strategies like everyday low pricing (as opposed to irregular sales or promotions), loyalty schemes, and price matches as ways that incumbents can keep investing in consumers to retain their custom. The result is that profitability has taken a hit across the board, but Edwards believes that grocers will return to growth next year. “There are plenty of levers for these businesses to continue to offer really good value for the consumer, which is why I think this is something of a speed bump, rather than anything more fundamental than that,” Edwards

Download Video Transcript   US stocks have risen significantly from their early April lows. Is the bounce over – and how are smart investors positioning now? Brian Garrett, head of equity execution on the Cross Asset Sales desk in Global Banking & Markets, discusses with Chris Hussey on the Goldman Sachs trading floor. This episode was recorded on May 22, 2025.

President Trump’s public criticism of the Fed isn’t new. But this time around the Administration is preparing to turn words into action by setting in motion a challenge to the landmark 1935 Humphrey’s Executor ruling that has prevented presidents from removing officials of independent agencies without “cause”. How concerned we should be today about the threat to Fed independence — and the implications for the economy and markets — is Top of Mind.  Top of Mind Fed independence: how concerning? Read the Report

Download Video Transcript   After a dreadful start to the year, US tech stocks have regained their momentum. What’s driving the rally, and how should investors position now? Peter Callahan, the US Technology, Media and Telecommunications sector specialist within Goldman Sachs Global Banking & Markets, discusses with Chris Hussey on the Goldman Sachs trading floor. This episode was recorded on May 14, 2025.

US stocks are expected to rally in the coming months as the Trump administration overhauls the country’s tariff policy with its largest trade partners. The S&P 500 Index fell in early April after the US government announced sweeping “Liberation Day” tariffs, but the index has rallied since then amid delays on the import taxes and signs of progress on trade-policy negotiations. China and the US agreed last weekend to reduce duties for 90 days amid ongoing trade discussions. “Investors have generally embraced the view that there’s an off ramp for some of these hefty tariffs,”  David Kostin, chief US equity strategist in Goldman Sachs Research, says in an episode of Exchanges. “I think that largely is priced in the market.”    How will the Trump administration’s tariffs affect US stocks? Goldman Sachs Research estimates the S&P 500 Index will increase about 11% to 6,500 in 12 months (as of May 12). The team raised their S&P 500 forecast following the developments in trade discussions between the US and China to incorporate lower tariff rates, better economic growth, and less recession risk than previously expected. Our economists estimate the US has a 35% chance of recession in the next 12 months and that GDP will expand 1.6%. “The recent shift in trade policy has reduced the probability of recession,” Kostin writes in a report dated May 12. “However, investors, consumers, and corporate managements will still need to grapple with the economic impact of higher tariff rates and the uncertainty surrounding where tariff rates will land.” The outlook for US stock earnings US companies reported 12% growth in first quarter year-over-year earnings, which is substantially higher than the 6% growth analysts had expected. While the strong earnings have given investors some confidence that economic expansion can continue, the first-quarter results reflect a backward-looking period that took place before US tariffs were implemented last month, Kostin says. “The debate right now with management is ‘who is going to pay the increased tariffs?’” he says. Investors are assessing to what extent the duties will be passed on to end customers or absorbed by the company or by the supplier. Kostin says those answers will depend on the nature of the industry group and the produce cycle. “There are certainly greater risks in the second quarter results, both from a revenue point of view — in terms of actual demand and how consumer behavior has been — and the input costs, which may squeeze margins as well,” he adds. Will US stocks continue to outperform? “Sentiment right now as we’re experiencing it is, I would say, still pretty uncertain but super engaged,” says Padi Raphael, global co-head of Third Party Wealth Management in Goldman Sachs Asset Management. “The clients aren’t shying away from the uncertainty,” Raphael said on the Exchanges episode during the firm’s RIA Professional Investor Forum, an audience responsible for $1.3 trillion of client capital. “They’re not paralyzed by fear. They’re highly engaged with the markets, with solutions, and with their clients.” As trade tensions impact the US economy, the outlook for the “US exceptionalism” investment theme — the expectation for US GDP growth and market returns to outshine other regions — has been a major discussion for investors. Raphael says sentiment toward that theme differs somewhat around the world. She says US investors aren’t shying away from their domestic market, but at the same time there’s heightened interest in some international markets and in Europe in particular. European investors have an increased bias toward repatriating assets to their home markets. Generally speaking in Asia, “US exceptionalism and the brand recognition around US companies is still very strong” among many investors, she says. “My recent conversations with investors from that region, from Asia, have not reflected any kind of loss of the shine of the US as a destination for investing,” she says. A key question is whether investors can find other geographies if they’re looking outside the US. Kostin points out that there have been recent fund flows out of the US to investors’ home markets, particularly in Europe. But the US makes up 65% to 70% of the global equity market, depending on the index. “The size of the market and the liquidity that’s here means that investors aren’t just going to leave entirely,” Kostin says. But at the same time, investors are eyeing what could be interesting opportunities elsewhere. He notes that some other equity markets are starting from lower valuations and have had better returns this year. The investment opportunity in private markets Raphael says private markets, including private equity and private credit, have been a focus for investors. “There is a huge amount of interest from a growing base, a broadening base of individual clients as represented by their financial advisors” in private markets, she says. Goldman Sachs Asset Management believes “very strongly that individual investors, and particularly high-net-worth individual investors, will benefit from having the same kind of access to institutional-grade investing opportunities that the most sophisticated institutions and the wealthiest individuals have enjoyed for decades,” she says.

Gold is increasingly in focus among traders, investors — and central banks. The precious metal, which has been used as a financial asset for millennia, is prone to dizzying rallies and deep slumps. But despite the commodity’s volatility, gold has repeatedly set records in recent years. Since March, investors have been increasing their holdings of gold, driven by concerns about the health of the economy and market volatility. Longer term, Goldman Sachs Research expects prices to be propelled by multi-year demand from central banks. Our analysts’ gold price prediction is for these two factors to push the metal to new record highs. Goldman Sachs Research’s gold price prediction 2025 Even so, Thomas says gold is likely to break more records this year. Goldman Sachs Research predicts gold will rise to $3,700 a troy ounce by the end of 2025 (from $3,220 on May 15) as central banks buy many tonnes of the precious metal every month. The commodity is also likely to climb as ETF investors increase their holdings in anticipation of interest rate cuts and amid growing recession concerns. In the event of a recession, Goldman Sachs Research forecasts that gold could rise to as much as $3,880 a troy ounce. Private investors might also turn to gold to diversify away from US assets, particularly if traditional equity portfolio hedges such as US Treasuries continue to underperform during equity drawdowns. While not the team’s base case forecast, Thomas says even a small rotation out of US assets into gold would have a big, positive impact on the gold price given the relative sizes of the markets. For example, global gold ETF holdings are worth only about 1% of outstanding US Treasuries and 0.5% of the S&P500 market cap. “While the key factor since 2022 used to be central bank buying alone, ETF investors are now joining the gold rally,” Thomas says. “As both compete for the same bullion, we are expecting gold prices to rise even further.”

France has run the biggest fiscal deficit in Europe, and the government has struggled to rein in spending. However the French economy also has strengths that may help it outperform its neighbors as Europe boosts military spending and the continent faces the uncertainty of US tariffs, according to Goldman Sachs Research. France’s GDP is forecast by our economists to expand 0.5% this year, compared with no growth in Germany and 0.8% for the euro area as a whole. We spoke with Alexandre Stott, a European economist in Goldman Sachs Research, about the outlook for France amid elevated budget deficits, increased military spending, and the uncertainty from trade and tariff tensions with the US. What is the outlook for the French economy? We see little growth in France this year, in fact less than in the rest of Europe. That’s because the economy is facing two major headwinds: trade tensions from abroad and deficit reduction at home. But some selective aspects of the French economy look attractive. First, Europe is increasing its military spending — Germany in particular. Where are they going to buy that equipment? A good part is likely to come from France, which has the largest defense industry in the region and is the second-largest military goods exporter behind the US. French industry would stand to benefit from a consolidation of the European military complex and is well positioned to provide key pieces of military equipment such as air defense systems and satellites, some of the things Europe needs most. Second, France is likely to be more shielded from an escalation of global trade tensions relative to its European peers. It’s a less open country and is less exposed to the US. So even if trade tensions are negative for Europe as a whole, on a relative basis, France won’t be hit as hard as Germany, which is very open, or Italy, which is quite exposed through its manufacturing sector. As a result, France may be more shielded from the global trade tensions. Lastly, France is an economy rich in human capital. By that I mean that it’s home to some of the world’s leading universities, from which a lot of engineers graduate and conduct cutting-edge research. That’s why France is one of the countries in Europe with the most innovation and the most startups, for example in areas like artificial intelligence. You may not always see these influences at the aggregate macro level, but it may be possible to invest in these areas with the right strategies, in a specific asset class or sector.    How might France be affected under different tariff scenarios? The tariff and trade outlook remains very uncertain. First, there’s what will be decided in the White House, meaning the size of the tariffs and what they cover. It seems to us like the US tariffs on certain goods — such as autos, aluminum, and steel — are here to stay. What’s not known is whether we will see a very broad tariff on Europe or remain at a 10% tariff or get to a full trade deal. Still, we think the risks are now a bit more symmetric, judging from recent communications out of the US. There will also be second-round effects. Uncertainty around trade policy will remain high, global growth is likely to slow, and financial conditions are now tighter. This should not affect France more than others, but it will still be negative for the economy. It’s one of the key reasons why our growth forecast is below consensus and government expectations. Why is the fiscal outlook such a concern for the French economy? France’s deficit is very large on a historical basis and compared to its peers. Last year, it was the largest deficit in the euro area. But we’re seeing signs of improvement. The government had been expecting a deficit of around 6% of GDP, and it was 5.8%. It’s not a big improvement, but it comes on the back of two years of negative surprises — so a more encouraging direction. A second sign of improvement is the government showing greater commitment to its deficit target. What you saw last year was a target being announced, and then some slippage, and the government revising the deficit target higher and higher. This year, the government is showing stronger resolve than I expected. That’s a positive, and I’m now more confident that the deficit will decrease this year. Why are deficits so important to the outlook? The deficit is the main economic variable that the government controls. But if you run a deficit year after year, it accumulates into debt, especially when growth is low and interest rates are high. Investors don’t want to see debt relative to the country’s GDP move upward consistently. They typically want the debt ratio to be stable or falling. That would mean the country is on track to eventually repay its debt and meet its obligations. I often get asked why France’s deficit is problematic, given the US also has very large deficits. First, growth tends to be lower in France, and that makes it easier for deficits to snowball into debt. Another important difference is that the US has the dollar, whereas France does not benefit from having the global reserve currency. On top of that, France doesn’t have independent monetary policy. The country is tied together with other countries to the euro and the European Central Bank. That’s why European countries follow self-imposed rules on how to conduct public finances, that focus on keeping debt low or stable. But France, with its large and increasing debt, clearly stands out. Which means the government’s options are limited? Deficits should increase in a recession or when growth is slowing. But equally, they should fall back when the economy improves. Countries across the euro region ran very high deficits in 2020 and 2021, during Covid, and then the countries that were hardest hit by the energy crisis in 2022 and 2023 again ran very large deficits.

 Subscribe wherever you get podcastsDownload Transcript As markets  – and the Fed – continue to grapple with tariffs, where is the opportunity for investors? Anshul Sehgal, Global Co-Head of Fixed Income, Currency and Commodities in Goldman Sachs Global Banking & Markets, discusses with Chris Hussey on the Goldman Sachs trading floor.