Goldman Sachs Warns of Late-Cycle Risks, Favors Equities Over Credit

Goldman Sachs is recommending that investors favor equities over credit due to late-cycle risks building, according to a note from the investment bank. The bank remains overweight equities for a 12-month horizon and has turned tactically more defensive.

The strategist, Christian Mueller-Glissmann, noted that sustained earnings growth will support equity outperformance against bonds and credit over the next year, though returns are expected to slow as earnings growth and revisions peak. Goldman expects the macro backdrop to remain relatively benign with slowing but sturdy growth, low U.S. recession risk, moderating inflation, and limited further central bank tightening.

The bank's preference for equities over credit is due to tight spreads, late-cycle releveraging, and AI-related debt issuance creating headwinds for credit while equities can still benefit from earnings growth. Goldman also flagged near-term volatility risks from rates, seasonal weakness, U.S. midterms, and geopolitics.