Get ready for an end-of-year rally for stocks, Goldman Sachs says

By Barbara Kollmeyer

Goldman Sachs doesn't see the party for stocks ending this year.

Goldman Sachs strategists say they've grown more bullish on equities for the rest of the year, citing an optimistic growth outlook and Federal Reserve easing that should help backstop stocks.

"The business cycle slowdown has continued, but recession risk remains anchored while monetary and fiscal policy easing accelerates, creating still favorable macro conditions for risk assets," said a team of analysts led by Christian Mueller-Glissmann, head of asset allocation research.

They noted that stocks tend to perform well in the case of late economic-cycle slowdowns with policy support when the risk of recession is low, citing the late 1990s and mid-1960s as historical parallels. Both of those periods "ultimately triggered strong equity rallies," Mueller-Glissman and his team told clients in a Monday note. Goldman economists expect two more Fed rate cuts this year and two in 2026.

They have shifted to overweight on equities from a neutral stance, and remain bullish for the next 12 months. They cautioned that the risk of a drawdown in stocks - a peak-to-trough drop in investment value - "remains elevated due to a combination of high valuations and weakening U.S. business cycle."

They also warned that stock valuations "can remain elevated or even increase further late cycle as long as macro conditions remain supportive" as long as bullish drivers are not challenged. For Goldman, the key drivers are U.S. big-cap tech stocks and AI - even if many are starting to question spending by AI-related companies.

Read: The AI hype is starting to fade on Wall Street. Here's what investors need to know.

However, to get a near-term correction, the analysts said they would want to see more negativity surrounding economic data and asset prices, along with rising volatility. The Cboe Volatility Index VIX has been hovering under 20 since the summer - above that level often indicates a higher degree of fear among investors. The S&P 500 SPX has managed 28 records this year, largely driven by the tech sector after a rebound from April lows, with a 13% gain for the year so far.

Still, Mueller-Glissmann and his team said they prefer diversification across assets "until clearer evidence to de-risk emerges." Goldman has upgraded commodities to neutral from underweight for the three-month period. Up 45% already this year, partly amid expectations for Federal Reserve easing and questions around its independence, gold prices (GC00) surged to a fresh record above $3,800 an ounce on Monday.

Read: Here's what Deutsche Bank says is driving the price of gold

Goldman has shifted to underweight from neutral on credit, because valuations in a late-cycle backdrop "are a more binding constraint for credit while equity valuations can overshoot." They are less bearish on credit for the next 12 months, given the low risk of recession and supportive supply and demand technicals for the asset class.

As for bonds, the Goldman team remained neutral on bonds for the next three and 12 months, saying they see "little scope for large declines in bond yields without a material weakening in growth data, which would in turn result in a more dovish pivot from global central banks."

Read: A fearless stock market is facing two rising risks, says Wedbush

-Barbara Kollmeyer

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09-29-25 1027ET