The summer Goldilocks rally has reversed, bringing with it an odd bond and stock market correlation, a Goldman Sachs report noted. As a result, risk parity funds were hard hit and, with bond prices potentially rising into the year end, the long end of the yield curve could see more pressure while the short end will continue to be “anchored” by central banks. Goldman’s September 15 Portfolio Strategy Report called for raising cash but at the same time upgraded stocks slightly.

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gs-9-19-stocks-and-bonds Goldman Bridgewater Risk Parity Fund

Goldman – Watch out for shocks as stocks upgraded on “less negative returns”

Due to “risk of shocks” Goldman recommends remaining defensive and advocates an overweight position in cash. “We still prefer credit to equity due to better asymmetry of returns,” the report said, pointing to better upside potential for credit than stocks.

With the bias towards credit, the report from Christian Mueller-Glissmann, Ian Wright, Alessio Rizzi and Peter Oppenheimer nonetheless moved higher its equities rating. Equities were upgraded to Neutral on the basis of optimism regarding fiscal easing and long-term growth expectations.


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