Goldman Sachs Report 2025: The Market May Have Hit Bottom, but Three Major Concerns, Including Policy Uncertainty, Are Hindering Recovery

In a report dated April 29, 2025, Goldman Sachs stated that while global stock markets are rebounding, the recovery is facing three major risks: high policy uncertainty, the impact of the unemployment rate on market risk pricing, and unusually mild market downturns. The U.S. policy uncertainty index is rising, the unemployment rate remains at 4.2%, but the number of unemployed people is increasing, and market declines are unusually mild compared to historical recession periods, indicating the market's vulnerability. Goldman Sachs warns that traditional hedging tools have become ineffective and recommends gold as a more effective hedging tool.

Policy Uncertainty: Insufficient Reversal of Pressure Sources

Goldman Sachs points out that the main source of pressure in the current market comes from policy uncertainty, especially the recent reciprocal tariffs introduced by U.S. President Trump. Although the market shows initial signs of easing in response to policy impacts, Goldman Sachs emphasizes that the extent of this "reversal" is still insufficient compared to past market bottoms.

Specifically, the Policy Uncertainty Index has risen significantly from a long-term average of 108 to a recent high, indicating that the market remains confused about future policy directions. Goldman Sachs believes that in the past, when the market faced shocks, it was often accompanied by clear policy shifts, such as significant interest rate cuts by the Federal Reserve or a sharp drop in oil prices. However, the current policy reversal is only moderate, and new policy shocks may still occur in the future, making it difficult for the market to establish solid recovery confidence.

Additionally, corporate confidence has also been hit. Surveys from the Philadelphia Fed and the New York Fed show that the proportion of businesses expecting economic activity to decline is nearing historical highs, reflecting concerns about policy environment uncertainty.

Unemployment Rate Impact: Challenges to Risk Pricing Mechanism

The second concern arises from the potential impact of the unemployment rate on market risk pricing. Goldman Sachs points out that the unemployment rate plays a crucial role in asset valuation models, especially in consumption-based models, where households facing income loss risks will have significantly increased risk aversion, affecting stock valuations and volatility.

According to data from the U.S. Bureau of Labor Statistics, the unemployment rate in April 2025 remained at 4.2%, unchanged from the previous month and in line with market expectations. However, the number of unemployed increased by 82,000 to 7.165 million, indicating that pressure is building in the labor market. Goldman Sachs predicts that if the economy further deteriorates, the unemployment rate could rise to 4.7% by the end of 2025, the highest level since 2017 (excluding the abnormal data during the 2020 pandemic).

This change has potential implications for the market that cannot be ignored. Goldman Sachs points out that it is rare for both employment and investment portfolios to be simultaneously damaged, and if it happens, it will pose a significant challenge to the market's risk pricing mechanism, potentially triggering a nonlinear adjustment in asset prices.

Unusual Decline: Market Vulnerability Compared to Historical Recession Periods

The third concern is that the current market decline seems unusually mild compared to historical recession periods. Goldman Sachs notes that as of April 8, the S&P 500 index has fallen about 19% from its peak. If this point is the market bottom, then this decline appears low in the context of historical recessions.

For example, three months after the U.S. economy entered a recession in 1990, the stock market only bottomed out when employment growth had turned negative; during the 2020 pandemic, although the market bottomed before the full deterioration of economic data, the decline was as much as 34%. In contrast, the current decline has stopped before the full manifestation of economic losses, which is inconsistent with past experiences, indicating that the market may be underpricing potential risks.

Goldman Sachs further points out that if the U.S. economy enters a full recession, the S&P 500 index could fall to 4,600 points, nearly 18% lower than current levels. Additionally, the credit spreads of U.S. high-yield bonds could widen to 788 basis points, and short-term Treasury yields could fall below 3%.

Rising Risk of Traditional Hedging Tools Failing

Notably, the Goldman Sachs report also mentions that traditional hedging instruments like long-term U.S. Treasuries and the dollar may not effectively hedge stock risks in the current market environment. Recently, the market has shown an unusual "emerging market-style correlation" phenomenon—stocks falling, yields rising, and the dollar weakening—reflecting increasing concerns about U.S. governance and institutional credibility.

In this context, Goldman Sachs believes that gold may become a more effective hedging tool. The bank predicts that in a recession scenario, gold prices could rise to $3,880 per ounce by the end of the year, significantly higher than its baseline scenario estimate of $3,700 per ounce.

References

• 高盛：市場或已觸底？復甦仍存三大隱憂 | Anue鉅亨 - 美股雷達
• 風險資產和商品都「未充分定價衰退風險」，高盛：對沖衰退，建議多金、空油！
• U.S. Added 177,000 Jobs In April As Trump Celebrates ‘Strong Employment’
• 非農就業火爆，高盛、巴克萊：下次減息估計要等到7月了