Goldman Sachs Warns of Stock Market Slowdown as Rothschild Cuts Exposure to US Equities

Cautious Investor Sentiment Returns Amid US-China Trade Deal Uncertainty

Investor confidence in the global stock market rally is showing signs of cooling, according to analysts at Goldman Sachs. The investment bank has flagged a potential short-term pause in equity markets as optimism around a potential US-China trade deal appears fully priced in.

Josh Schiffrin, Chief Strategy Officer at Goldman Sachs, has shifted his market outlook from bullish to neutral, citing limited upside in the near term. “Stock prices have already adjusted significantly to reflect trade optimism,” he wrote in a client update.

Concerns Over Durability of Stock Market Rally

Goldman Sachs strategist Shawn Tuteja echoed this sentiment, highlighting growing doubts among institutional investors about whether the current stock market rally is sustainable. “A large part of the optimism is already baked into share prices,” Tuteja explained.

He also warned that a trade agreement that only reduces tariffs by a partial margin—such as 70%—could lead to a market correction. “If the headlines focus on a ‘deal’ that only partially rolls back tariffs, it could disappoint investors and trigger a sell-off,” he noted.

S&P 500 Rally Sparks Profit-Taking Among Portfolio Managers

The S&P 500 index recently saw a nine-day upward streak, fuelled by US President Donald Trump’s announcement on tariff relief. However, some fund managers are viewing this as an ideal time to take profits and reduce risk exposure.

Delphine Arnaud, Portfolio Manager at Edmond de Rothschild, confirmed that her team is reducing its US equity holdings. “We’re using this rally as a chance to realise gains—it’s an unexpected but welcome opportunity,” Arnaud said. She described the rally as “acrobatic,” suggesting it’s been driven more by market positioning and investor sentiment than by strong economic fundamentals.

Weak Earnings and Recession Risks Lead Rothschild to Favour European Small-Caps

Arnaud cited weaker-than-expected earnings growth and heightened recession risks as reasons to avoid US stocks. “We’re avoiding American companies that are vulnerable to prolonged trade tensions,” she said.

Instead, Rothschild is shifting focus to European small-cap stocks, which Arnaud views as more insulated from global trade issues. “These firms are more reliant on domestic demand, offer lower valuations, and stand to benefit from declining interest rates and potential fiscal stimulus from the German government,” she explained.

(Sources: investing.com, reuters.com)