Goldman Sachs Sees Receding Recession Risk but Warns Market May Be Priced for Perfection

U.S. stocks ticked higher early Wednesday, supported by de-escalating trade tensions and signs of softening inflation, though gains were more muted than earlier in the week. Fifteen minutes into the trading session, the Dow Jones Industrial Average edged up 18.18 points (0.04%) to 42,158.60, the S&P 500 added 2.84 points (0.05%) to 5,889.39, and the Nasdaq Composite climbed 65.82 points (0.35%) to 19,075.90. Meanwhile, the small-cap Russell 2000 underperformed, slipping 0.32% to 207.96.

Tech leadership remained intact, with shares of nvidia and tesla rallying more than 5% in premarket action. super micro computer jumped 18% following a bullish analyst call, while Amazon, Alphabet, Meta Platforms, and Broadcom all traded higher. Apple and Microsoft saw modest declines.

The market is absorbing a wave of supportive news, including a 90-day pause in U.S.-China tariff hikes and a recent report showing annual inflation at a four-year low. Meanwhile, bond yields and commodity prices drifted slightly lower. The 10-year Treasury yield stood at 4.48%, gold slipped 0.9% to $3,215 per ounce, WTI crude dropped 1.3% to $62.85 a barrel, and the U.S. dollar index weakened 0.4% to 100.60. Bitcoin remained firm near $104,000.

Adding to the upbeat mood, a new strategy note from goldman sachs characterized the recent market correction as “event-driven and temporary,” rather than structural or cyclical. “The market is pricing out recession risk and has recouped most of its losses,” the bank said, referencing tariff relief and improving global trade dynamics.

Goldman: Recovery Real, But Risks Still Lurking

Goldman raised its U.S. GDP forecast for 2025 to 1% (Q4/Q4) and trimmed its 12-month recession probability to 35%. Its S&P 500 year-end target now stands at 6,100, with a 12-month return projection of 11%, driven by stronger corporate earnings and global growth revisions.

Despite the improved outlook, Goldman struck a cautious tone on valuations and potential downside risks. “There remains a high degree of uncertainty,” the strategists warned. “If the hard data deteriorates meaningfully from here, it is likely that investors will once again price in a higher probability of recession.”

The firm underscored the importance of diversification—both geographically and across sectors. “While the S&P is back to being slightly up on the year, Europe is up 10%, and 18% in USD terms,” the note stated, citing standout performance from markets like Italy, Germany, and Hong Kong.

With macro conditions shifting and valuations stretched, Goldman urged investors to focus on alpha over beta, favoring quality growth and AI-linked names that can deliver sustained earnings amid a still uncertain backdrop.