Why "there will be opportunities in US Treasuries, US stock valuations are too high and need to adjust, and European and Chinese stock markets currently reflect value"? Goldman Sachs' latest research explains it all

Facing the unknown risks of the Trump administration and potential economic slowdown, how will U.S. Treasury bonds and U.S. stocks perform?

On the 15th, Goldman Sachs' Jenny Grimberg research team released a report indicating that due to the strong U.S. employment report in December, the previously expected third interest rate cut this year will be delayed. Goldman Sachs has revised its forecast for the number of interest rate cuts by the Federal Reserve this year from 3 to 2, expecting the Federal Reserve to cut rates by 25 basis points in June and December 2025, instead of the previously predicted March, June, and September. Additionally, another rate cut is expected in June 2026.

Goldman Sachs believes it still leans towards a dovish stance. With inflation continuing to cool and economic growth slowing, there is still room for further declines in U.S. Treasury yields. Meanwhile, U.S. stocks face the risk of overvaluation, as the market has already "priced in perfection" and may face a correction.

In contrast, the stock markets in China and Europe show strong investment potential, with non-tech sector companies also being very attractive.

U.S. Treasury Bonds: From Selling Pressure to Rebound, Potential Emerging

In the past few weeks, the U.S. Treasury market has experienced significant selling pressure; however, with the December core CPI data coming in below expectations, the U.S. bond market has seen a rebound. Nevertheless, Goldman Sachs believes that the interest rate market's expectations for the Federal Reserve's policies remain hawkish.

However, Goldman Sachs stated that to drive yields lower consistently, more favorable data or policy news may be needed, or high yields could have a significant negative spillover effect on risk assets (such as the stock market). These favorable data include further cooling of potential inflation or weak economic growth and employment market data.

Therefore, although the path for Federal Reserve rate cuts has been delayed compared to before, U.S. Treasury bonds still hold attractiveness amid the ongoing pressures of U.S. economic growth and potential policy changes triggered by the Trump administration.

"Although the expectations for U.S. economic growth remain stable, the risks of economic slowdown still exist against the backdrop of tightening financial conditions, pressures on interest rate-sensitive sectors, and tariff risks."

Additionally, due to the delayed expectations for Federal Reserve rate cuts and the potential negative impact on economic growth from higher tariffs, Goldman Sachs expects the U.S. dollar to remain strong.

U.S. Stocks: Correction Risks Under Valuation Pressure

Compared to the bond market, the U.S. stock market faces a more complex situation.

In recent months, the U.S. stock market has experienced strong gains, primarily due to optimistic expectations for U.S. economic growth. However, the current valuation levels of U.S. stocks are nearing historical highs, Goldman Sachs pointed out that the stock market has "priced in perfection," which means that if future economic growth or corporate earnings fail to meet expectations, the market may face significant correction risks.

Specifically, the current high valuation of the U.S. stock market, coupled with a few large tech stocks dominating the overall gains, further increases the market's vulnerability. If the Federal Reserve continues to maintain a hawkish policy or the risks of economic slowdown increase, the stock market may experience a wave of adjustments.

Based on this, Goldman Sachs suggests that investors remain cautious in the U.S. stock market and recommends diversifying investments to avoid being overly concentrated in the high-valuation tech sector:

"In terms of regions, we have seen selective opportunities in European, Chinese, and emerging market stocks.

In terms of strategy, companies in non-tech sectors look more attractive after the recent downgrades."

Risk Warning and Disclaimer

The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at one's own risk