Goldman remains 'relatively defensive' next 3 months, expects to add risk in 2023

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By Senad Karaahmetovic 

Banking and investment giant Goldman Sachs (NYSE:GS) told clients to stay defensive over the next 3 months as it expects "further headwinds from rising real yields likely and lingering growth uncertainty."

Goldman reiterated its "relatively defensive" positions, which calls for being Overweight cash/credit, Neutral commodities, and Underweight bonds/equities.

Strategists led by Christian Mueller-Glissmann also note a "relatively low" risk premia after the recent bear market rally. The strategist urged clients to focus on yields in the near term and seek exposure to “up-in-quality” assets,

"We expect opportunities to add risk in 2023 and are N across assets/OW commodities over 12m," Mueller-Glissmann said in a client note.

"Without depressed valuations, for markets to trough investors need to see a peak in inflation and rates, or a trough in economic activity. The growth/inflation mix remains unfavourable – inflation is likely to normalise but global growth is slowing and central banks are still tightening, albeit at a slower pace," the strategist added.

Mueller-Glissmann also noted that risky assets are still quite expensive, which makes them unattractive for investing, especially bearing in mind that "earnings are skewed to the downside next year."

"Equity risk premia appear low considering elevated recession risk and uncertainty on the growth/inflation mix. Weak growth and volatility coupled with relatively high valuations keeps equity drawdown risk elevated. Financial stability concerns have also picked up alongside market stress indicators."

Until central banks stop hiking and inflation gets to more normal levels, bonds are unlikely to be a reliable buffer for risky assets, Goldman’s strategists added.

Elsewhere, Mueller-Glissmann also expects 2023 to yield a peak in the U.S. dollar.