Goldman Sachs has warned that multi-asset portfolios are exposed to a near-term stagflationary shock as global equities continued to fall last week amid higher oil prices and persistent conflict in the Middle East.
The bank noted that oil transit through the Strait of Hormuz remains at low levels, with only limited substitution available via pipelines, even though there had been hopes for negotiations between the US and Iran. That constrained flow is occurring alongside continued upward pressure on oil prices.
Despite those pressures on energy, Goldman observed that global front-end interest rates have inched toward some stability. Nonetheless, the firm highlighted a meaningful shift in cross-asset behavior: average pairwise correlations calculated from intraday returns have risen sharply during the recent energy shock, reducing the scope for effective diversification across asset classes.
Goldman also pointed to a significant drop in the RAI PC2 metric - a component that measures monetary policy optimism - describing the decline through Friday last week as among the largest recorded since 2000. That movement, the bank said, underscores an erosion in market confidence about policy trajectories.
The bank assessed that markets had largely priced in a rate shock by last Friday but had only incorporated limited downside growth risks up to that point. It added that many conventional rate-linked safe-haven assets have sold off since the onset of the Middle East war. Still, Goldman noted that some asset groups began to show stabilization last week, including infrastructure equities, utilities and stable dividend-paying stocks.
In terms of positioning, Goldman Sachs shifted tactically to a more defensive asset allocation soon after the conflict escalated. For a three-month horizon, the bank moved to an overweight allocation in cash, maintained neutral positions on equities, bonds and commodities, and adopted an underweight stance on credit.
Goldman s credit team raised its spread forecasts for year-end and expressed a preference for the USD credit market over EUR in both the investment grade and high yield sectors. The firm continues to recommend adding US TIPS and infrastructure equities to portfolios and, following a recent drawdown, now favors gold.
Investors should monitor key economic releases this week cited by the bank: in the United States, retail sales are scheduled for Wednesday and employment data for Friday. In Europe, flash inflation readings are due on Monday and Tuesday, with manufacturing PMIs and employment reports coming on Wednesday.
Impacted sectors noted: energy, infrastructure equities, utilities, credit markets, commodities, and inflation-linked instruments.