Goldman Warns S&P 500 Rally May Be Short-Lived Due to Geopolitical Risks

Goldman Sachs strategists have issued cautious outlooks for the potential recovery of risky assets, particularly stocks, towards the end of the year. Despite rising yields and higher oil prices, the S&P 500 index closed the day almost unchanged at 4,373.

Goldman believes that any recovery in the S&P 500, and stocks in general, may be modest and short-lived due to persistent geopolitical risks that fuel concerns about economic growth.

Analysts are noting a growing divergence among the metrics they track. Surveys and the positioning of some fast funds have shifted towards a bearish stance, with options positioning being the most bearish," the strategists wrote in a report.

It's worth noting that fund flows are also sending mixed signals, as inflows into 'safe' bonds remain robust, indicating increasing caution among investors. However, equity flows have not shown a significant shift towards a bearish sentiment.

"The return of geopolitical risk could initially support sentiment by bringing some relief on rates and rekindling investor optimism about a more accommodative policy. But an extended period of geopolitical uncertainty coupled with an ongoing inflationary macroeconomic environment is expected to eventually raise growth concerns."

Analysts believe that the positioning of risky assets, especially stocks, could still recover by the end of the year. This, in turn, could mean that any relief rally might be smaller and short-lived," the strategists conclude.

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