Goldman Sachs favors stocks over credit amid rising risks

Goldman Sachs is telling investors to bet on stocks and cool it on credit. The firm upgraded equities to Overweight from Neutral for both its 3-month and 12-month outlooks, while simultaneously downgrading credit to Underweight. It’s the kind of strategic pivot that tends to ripple through portfolio allocation decisions across the industry. The logic boils down to a simple asymmetry: stocks still have room to run on earnings growth, while credit markets are bumping up against a ceiling of tight spreads and stubborn yields. Goldman’s analysts describe the current credit environment with a phrase that sounds like it belongs in a thriller novel: “unstable stability.” Why stocks, why now Goldman’s bullish case for equities rests primarily on anticipated corporate earnings growth. The firm sees companies continuing to deliver solid results, with technology spending, particularly around AI-driven capital expenditures, acting as a meaningful tailwind. Goldman’s analysts point to historical patterns showing equities have outperformed credit on a risk-adjusted basis during late-cycle environments. In these phases, earnings growth and valuation expansion can still generate positive returns e...