Why Goldman Sees Trouble Ahead for Stocks

Goldman Warns: Calm in Equities May Be Ending

The S&P 500 just notched its 18th record close of 2025, fueled by strong corporate earnings—boosted by AI spending—and softer Fed expectations, according to Goldman Sachs. Risk premiums have narrowed, credit spreads have tightened, and the VIX has fallen to its lowest since December.

But Goldman strategists Christian Mueller-Glissmann and Andrea Ferrari say the setup is less friendly than past low-volatility periods. The chance of outsized rallies is slim, while the probability of a sharp pullback is climbing.

High valuations, weakening labor data, and slowing business-cycle momentum have all pushed their drawdown probability index higher—similar to the spike seen after Trump’s April tariff announcement.

Tariff uncertainty, sticky inflation, and lingering geopolitical risks could also limit Fed rate cuts, keeping markets vulnerable.

Goldman sees U.S. growth staying weak in the second half, meaning more Fed easing is possible—but likely alongside higher equity volatility.

Their stance: tactically neutral—overweight cash, neutral on equities, credit, and bonds, underweight commodities. For hedging, they favor cheap put spreads and selective downside plays on Brazil’s Bovespa, India’s Nifty 50, and China’s CSI 300.

On the upside, they see potential in calls on the S&P 500 Equal Weight Index if gains spread beyond mega-cap tech.