Goldman Sachs: Flows and Sentiment
Risk-On Sentiment Dominates Market Flows
Goldman Sachs trader/strategist Paolo Schivaone highlights a consistent theme amid recent market turbulence: Flows into risky assets and away from safe havens.
Key Drivers:
Real economic momentum remains strong.
Easier financial conditions (FCI) continue to support risk assets.
Lower real rates fuel demand across asset classes.
Market Reaction:
Excess liquidity is bidding all assets—bonds first, regardless of macroeconomic data (e.g., Monday’s ISM report was ignored).
Lower bond yields act as another "put" for risk assets.
Higher inflation risk is reflected in 2-year U.S. inflation break-evens but is not yet influencing the long end of the curve.
Cross-Asset Sentiment: Bullish with Growth Optimism
A broad set of indicators confirms the risk-on narrative:
Equity risk premium trends remain supportive of stocks.
Cyclicals vs. Defensives favor growth-oriented sectors.
Credit spreads: High-yield (HY) spreads vs. investment-grade (IG) remain tight.
Global bond markets: U.S. and German 10- & 30-year yields reflect investor confidence in growth.
FX trends: CHF/GBP, EUR/USD movements align with risk-on sentiment.
Credit and bond sentiment remain "risk-on", and global growth optimism is high despite ongoing trade concerns.
Despite strong sentiment, secondary macro data suggests potential shifts:
JOLTS (Job Openings) and Factory Orders signal possible softening in economic momentum.
Bond markets have largely ignored easing financial conditions, but last week saw the first negative Equity/Bond correlation of the year.
Bond markets remain in a range, though Schivaone remains bearish in the medium term despite strong near-term trading.
Tactical Trade Opportunities: Equity & Gold
Best momentum assets for traders:
Equities (S&P 500)
Gold (GLD)
Suggested Trade Idea (Combo Trade):
April 17, 2025: S&P 500 > 105% & Gold/USD > 105% @ 9.3%
Labor Market Outlook & Fed Policy Implications
Goldman’s NFP Forecast:
190k (vs. 170k consensus)
Upside risk to 220k
Fed Cycle Extended:
The Fed has successfully prolonged the economic cycle.
Real interest rates have likely peaked, reinforcing the "lower-for-longer" narrative.