Market Overview - Risk appetite surged at the end of the trading week, with the S&P 500 breaking above 6,190 and the Nasdaq 100 extending all-time highs due to easing trade tensions and geopolitical risks [1] - The Dow Jones Industrial Average climbed steadily near the 44,000 mark, outperforming other major indexes, driven by significant gains among blue-chip companies [3] Trade Agreements - President Donald Trump indicated that the U.S. is finalizing multiple trade agreements, with four to five deals either completed or nearing completion ahead of a key July 9 deadline [2] - A new U.S.-China trade accord was confirmed, which includes tariff reductions and safeguards for rare earth imports, further boosting market sentiment [2] Company Performance - Nike Inc. saw an 18% increase in stock price after reporting quarterly earnings that exceeded Wall Street expectations, marking its best trading day ever [3] - Boeing Inc. advanced 4% following a positive analyst note from RedBurn Atlantic [3] - NVIDIA Corp. extended its leadership in the AI sector, surpassing a $3.8 trillion market capitalization, reinforcing its status as the world's most valuable company [4] - GE Aerospace gained 3.5%, reaching its highest level in 17 years [4] Sector Performance - Nearly every S&P sector closed in the green, except for energy, which lagged sharply as oil prices faced their worst weekly drop since March 2023 [5] - Gold prices dropped 1.6% to $3,270 per ounce as traders shifted into risk assets, moving away from traditional safe havens [5] Currency Trends - The U.S. dollar extended its losing streak to a seventh session, reaching its lowest level since February 2022, and is on track for its worst first half of a year since 1991 [6]

Investment Rating - The report maintains a Neutral rating across equity regions to maximize diversification, with a shift to a more defensive asset allocation [4]. Core Insights - The market experienced a significant sell-off following the announcement of a reciprocal tariff policy by the US, leading to an 11% drop in the S&P 500, marking one of the largest two-day declines since the Great Depression [2][9]. - The Risk Appetite Indicator (RAI) saw one of its largest two-day drops since 1991, indicating a broad 'risk-off' sentiment across assets, with the RAI closing at approximately -1.4 [3][4]. - Historically, RAI levels near or below -2 have indicated better opportunities to 'buy the dip', with a hit ratio of over 90% for positive S&P 500 returns in the subsequent 12 months from such levels [3][4]. Summary by Sections Market Reaction - The S&P 500's drop of 11% since the tariff announcement is the fifth largest two-day drop since the Great Depression, with US equities leading the sell-off across assets [2][9]. - Non-US equities initially reacted less sharply but saw accelerated declines later, while credit spreads widened, indicating increased credit beta to the equity sell-off [2]. Risk Appetite Indicator - The RAI dropped to around -1.4, with a tendency to bottom lower during previous market sell-offs, suggesting potential buying opportunities when it reaches levels near or below -2 [3][10]. - The credit component of the RAI fell rapidly, closing the gap with the equity component, although credit is still pricing a low probability of recession [3][4]. Asset Allocation - The report indicates a shift to a more defensive asset allocation, moving from Overweight (OW) equities to Neutral (N), while maintaining OW in bonds and underweight (UW) in credit [4][19]. - The probability of a sell-off for equities is now above 40%, driven by worsening market sentiment [4].

Summary of Key Points from the Conference Call Industry Overview - The report discusses the current state of the global economy, focusing on macroeconomic indicators and market performance across various asset classes, particularly equities, bonds, and commodities [2][3][4]. Core Insights and Arguments 1. **Economic Indicators**: - The Euro area-wide flash composite PMI is reported at 50.4, indicating mixed data across countries and sectors [2][3]. - US growth forecasts have been revised down to 1.7% for Q4/Q4 due to tariff-induced uncertainty affecting sentiment and growth [3][4]. 2. **Market Performance**: - US equities showed signs of relief, supported by expectations of limited tariff announcements [2]. - Asian equities and commodities performed well, while the US Dollar rebounded after a recent correction [2]. 3. **Central Bank Policies**: - Central banks, including the Fed, BoJ, and BoE, have slowed their pace of easing, maintaining steady rates, except for the Swiss National Bank, which cut rates by 25 basis points [2][3]. 4. **Investment Recommendations**: - A balanced portfolio is recommended, with overweight positions in equities and bonds, neutral in commodities and cash, and underweight in credit [5]. - Selective cross-asset option overlays are suggested, such as put spreads on oil as a hedge against lower global growth [5]. 5. **Volatility and Risk Management**: - Implied volatility has increased, particularly for equities, prompting a focus on diversification across and within asset classes [5]. - Strategies like selling risk-reversals on EUR/CHF are highlighted to hedge against European growth downside risks [5]. 6. **Safe Haven Assets**: - Diversifying safe havens beyond the US Dollar is advised, with JPY/AUD showing greater sensitivity to global growth expectations compared to Dollar crosses [5]. Additional Important Content - The report emphasizes the negative correlation between G4 yields and economic surprises across regions, with the exception of Germany, where expectations of increased fiscal spending have driven yields upward [4][16]. - The performance of credit indices has outperformed equities during sell-offs due to their lower beta to risk-off episodes [4]. - The report includes various exhibits that illustrate the performance of different asset classes, risk appetite indicators, and valuation metrics [8][24][29][64]. This summary encapsulates the key points from the conference call, providing insights into the current economic landscape, market performance, and investment strategies recommended by Goldman Sachs.