Goldman Sachs strategists suggest that as the Federal Reserve cuts interest rates while economic growth remains robust, the global economic cycle may extend, supporting equities and emerging market assets while creating mild headwinds for the U.S. dollar.
Strategists including Kamakshya Trivedi wrote in a Thursday report that the next phase of the rally could come with heightened volatility and dual risks: potential growth disappointments on one side and economic overheating—possibly even reigniting rate hike concerns—on the other.
Goldman Sachs stated, "Solid global growth alongside the Fed's non-recessionary rate cuts should be positive for global equities, but tensions from 'overheated valuations' may amplify volatility."
The firm noted, "In many ways, markets are far ahead of the macroeconomy—creating a tension between 'overheated valuations' in equities and credit markets and a macro cycle that has yet to fully exhibit the imbalances and leverage typical of late-cycle dynamics."
Goldman Sachs emphasized that portfolios must balance hedges against both downside growth risks and overheating risks.
The bank also warned that as the AI-driven capital expenditure boom continues, "some of the imbalances seen in the late 1990s could become more pronounced."
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