Market Pulse July

Controlling what you can has become increasingly important against today's backdrop of geopolitical uncertainty, elevated interest rates, and market volatility. Investing for income, across any asset class, can provide a buffer against market fluctuations and capital losses – making it a key component of a resilient portfolio strategy, in our view.

Macro Views

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Growth Gauging the true momentum of the global economy remains challenging due to the large front-loading effects ahead of tariffs, as well as the elevated headline risk of further trade tensions and conflict in the Middle East. We think labor market data in the US and Europe will be the best signal this summer. Our colleagues in Global Investment Research expect slowing but solid GDP growth of 1.8% in the US and 1.0% in Europe for full-year 2025.

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Inflation Gauging the true momentum of the global economy remains challenging due to the large front-loading effects ahead of tariffs, as well as the elevated headline risk of further trade tensions and conflict in the Middle East. We think labor market data in the US and Europe will be the best signal this summer. Our colleagues in Global Investment Research expect slowing but solid GDP growth of 1.8% in the US and 1.0% in Europe for full-year 2025.

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Geopolitics Gauging the true momentum of the global economy remains challenging due to the large front-loading effects ahead of tariffs, as well as the elevated headline risk of further trade tensions and conflict in the Middle East. We think labor market data in the US and Europe will be the best signal this summer. Our colleagues in Global Investment Research expect slowing but solid GDP growth of 1.8% in the US and 1.0% in Europe for full-year 2025.

Chart of the Month: S&P 500 During Select Geopolitical Events

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Source: Bloomberg and Goldman Sachs Asset Management. As of June 30,2025. Chart shows the performance of the S&P 500 after a selection of geopolitical events. Size of sell off refers to peak to trough after the event. For all events except the 1973 Arab Oil Embargo, that began the day of the event. For 1973, the sell off began a week later. Duration of sell off refers to the number of days during drawdown and recovery.
The above content is sources to Goldman Sachs Asset Management, GIR, and MSCI. As of June 30, 2025. “We/Our” refers to Goldman Sachs Asset Management. The macro and market views expressed may differ from those of GIR and other divisions of Goldman Sachs and its affiliates. See page 3 for additional disclosures. The economic and market forecasts presented herein are for informational purposes as of the date of this document. There can be no assurance that the forecasts will be achieved. Past performance does not predict future returns and does not guarantee future results, which may vary.

Market Views

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Equities As equity markets move from headline risk to baseline fundamentals, we believe economic growth will continue to drive earnings and prices higher. One key question is if the AI hyper-scalers will be able to show proof of adoption and use cases that validate ROI expectations. But with just 9% of US companies currently using AI, we think there is still untapped upside potential.

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Rates We expect fiscal pressure will keep long-end yields higher across major markets, even as rate cuts may bring short duration relief. In the US, GIR estimates the tax and spending package will take the deficit to 7% of GDP in the next 10 years, while the German budget path would increase the deficit to almost 4% of GDP by YE 2027.

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Commodities Oil prices peaked last month with an estimated geopolitical risk premium of $12/bbl. While we still assume no significant disruptions to oil and gas supply, the near-term downside risks to supply and upside risk to price targets have risen. Longer-term, oversupply should keep oil prices anchored.

Asset Class Forecasts

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Source: Price targets of major asset classes are provided by Goldman Sachs Global Investment Research. Source: “Rebound week for global markets.” As of June 30, 2025.

The “We/Our” above refers to Goldman Sachs Asset Management. The macro and market views expressed may differ from those of GIR and other divisions of Goldman Sachs and its affiliates.. See the end of material for additional disclosures. The economic and market forecasts presented herein are for informational purposes as of the date of this document. There can be no assurance that the forecasts will be achieved. Past performance does not predict future returns and does not guarantee future results, which may vary.
 

Year of Income Continues

In today's economic landscape of elevated interest rates, geopolitical uncertainty, and market volatility, controlling what you can has become increasingly important. Investing for income, across any asset class, can provide a buffer against market fluctuations and capital losses, making it a key component of a resilient portfolio strategy in our view. In equity markets, dividends and options can help manage risk and returns. In fixed income, higher interest rates have created potential opportunities for carry and cushion.
 

Dividends Can Boost Total Equity Returns

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Source: Bloomberg, MSCI, and Goldman Sachs Asset Management. As of June 30, 2025. Chart shows the percentage of total return over the last 20 years attributed to dividends.  
 

Dividends have been a significant driver of total returns in recent years, especially outside the US. While US returns have relied more heavily on price appreciation, European and Asian equities have offered more consistent dividend payouts. This equity yield can be valuable in today's volatile environment. Given persistent uncertainty and the impact on valuations and earnings, focusing on higher dividend-paying markets may enhance portfolio stability and long-term performance.
 

Call Writing May Help Manage Equity Risk and Add Income

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Source: Goldman Sachs Asset Management. As of June 30, 2025. Chart shows an illustrative buy-write strategy with 100% coverage, 50% coverage, and 0% coverage (the market return). Chart shows that buy-write can outperform in down markets and flat to single digit markets, but underperforms in exuberant markets.
 

Buy-write strategies seek to generate premium equity income by investing in a portfolio of stocks while also selling call options. Depending on the degree that the portfolio is “covered” by these options, investors can participate in broad equity market growth, but with lower highs and higher lows. These strategies tend to outperform when markets are down to flat or up single digits. Regardless of the overall market performance, option writing can be a diversified source of portfolio income.
 

Fixed Income Spreads Are Tight but Yields Remain Elevated

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Source: Bloomberg and Goldman Sachs Asset Management. As of June 30, 2025. Chart shows the current and historical yields and spreads since 2000 for the Bloomberg US Corporate and Bloomberg Euro Corporate Bond Index. Investment grade refers to securities rated BBB-, Baa3 or higher by a nationally recognized statistical rating organization.

“We/Our” refers to Goldman Sachs Asset Management. The economic and market forecasts presented herein are for informational purposes as of the date of this document. There is no guarantee that objectives will be met. There can be no assurance that forecasts will be achieved. Diversification does not protect an investor from market risk and does not ensure a profit. Please see additional disclosures at the end of this document. Past performance does not predict future returns and does not guarantee future results, which may vary.
 

Investment grade companies entered today’s environment of higher tariffs and rising uncertainty with strong credit fundamentals. Key credit metrics such as leverage, debt servicing capacity, and liquidity positions were robust to start the year. We believe that high-quality balance sheets can provide a cushion against downside macro risks, while elevated yields enhance total return potential and provide a buffer against potential spread widening.