Goldman Sachs says recent shocks have eroded investor confidence but that the chance of a prolonged, deep market downturn remains limited.
In a note from strategist Christian Mueller-Glissmann, the bank highlighted movement in its Risk Appetite Indicator, which was above 1 earlier in the year before weakening. The strategist attributed the deterioration in sentiment to concerns around AI disruption, private credit, sharply higher oil prices and the Middle East war, and said these developments have chipped away at what was previously viewed as a Goldilocks economic backdrop.
Goldman noted that those shocks have impacted multi-asset portfolios, warning that "the risk of a larger 60/40 portfolio drawdown has increased." Still, the firm underlined its view that long-term bear market risk remains limited.
The note quantified the recent movement using the bank ody hart for global assets: the world portfolio proxy that Goldman uses to track roughly $300 trillion of assets has fallen by about $11 trillion since the start of the conflict, equal to roughly a 4 percent decline. The strategist emphasized that, in a long-run context, this magnitude is still a relatively small drawdown, and that historically much deeper falls have been linked to episodes of high, persistent inflation or major equity market collapses.
Looking ahead, Goldman Sachs expects energy prices to begin normalising from the second quarter. On that basis the bank argued that "the risk of a sustained, large 60/40 drawdown is still limited." To address the near-term risk environment, the firm recommended moving toward defensive equity styles and adding selected safe assets to portfolios as a way to blunt stagflation pressures.
Goldman also outlined hedging tools it is screening for to protect against both left and right tail risks. The strategies named in the note include equity puts, CDS payers and selective call structures. The bank presented these measures as options investors might consider to protect multi-asset allocations without assuming a view that the market is destined for a deep, prolonged bear market.
Summary
Goldman Sachs says sentiment has slipped after its Risk Appetite Indicator peaked earlier in the year. Rising concerns over AI disruption, private credit, oil and the Middle East war have pressured portfolios, yet the bank views the scale of the drawdown so far as modest and believes sustained, large-scale bear market risk is limited. It recommends defensive equity styles, selective safe assets and option-based hedges.