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Since early September, there has been a noticeable improvement in global market sentiment. The U.S. non-farm payrolls report for September exceeded expectations, coupled with significant measures taken by the People's Bank of China, the global economic outlook is becoming clearer, and Chinese and European and American stock markets have seen a joint surge at one point.

However, as we entered October, the U.S. CPI for September exceeded expectations across the board, and the recent rebound in oil prices has shifted the market's focus back to inflation. In the latest research report, Goldman Sachs pointed out that as investor sentiment has undergone subtle changes, the core narrative of the global market is shifting from a "Goldilocks" economy to "reflation."

On Monday, local time, analyst team led by Andrea Ferrario released a report stating:

Starting from early September, the overall market sentiment has become more optimistic. Our risk appetite indicators showed a significant positive change last week, driven by a bullish repricing of growth. In September, the monetary policy factor PC2 and the global growth factor PC1 rose in tandem, reflecting the market's expectations for a "Goldilocks" economic environment.

However, since the beginning of October, PC2 has declined, pricing closer to a "reflation" environment. We expect the market to continue to fluctuate between the "Goldilocks" and "reflation" economic environments before the end of this year.

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In a "reflation" environment, the market may prefer assets that can benefit from economic recovery and rising inflation. We are optimistic about the returns of risky assets over the next year, adjusting our stock and credit ratings from neutral to overweight for the next three months.

Growth expectations become a greater driving force for asset appreciation

The repricing of economic growth is also intuitively reflected in market trends. The Goldman Sachs report points out that there has been a significant change in the global market's response to macroeconomic data in the past few months:In the first half of this year, the economic "bad news" was interpreted by the market as the "good news" of the Federal Reserve's interest rate cuts. However, by the summer, the market's reaction to "bad news" became more genuine and direct, with "bad news" remaining "bad news."

Recently, "good news" has been "good news" for growth pricing, but it is less clear for policy pricing, as investors anticipate a reduced risk of economic recession and have concerns about a renewed acceleration of inflation.

In fact, the market has significantly reduced the likelihood of rapid interest rate cuts by the Federal Reserve, with the expected pace of rate cuts now aligning more closely with other central banks around the world.

At present, growth expectations have become a more important driver of cross-asset returns.

In a "reflation" environment, Goldman Sachs is more bullish on stocks and credit.

As the core narrative shifts from a "Goldilocks" economy to "reflation," the performance of different asset classes has also changed.

Specifically, under a "Goldilocks" scenario, the market typically favors assets with stable growth and low risk, while in a "reflation" environment, the market may prefer assets that can benefit from economic recovery and rising inflation.

Taking the performance of global assets in the past two months as an example, a Goldman Sachs report points out:In September, cyclical stocks in Europe and Japan showed a more pronounced increase relative to defensive stocks, but cyclical stocks in the United States had an even stronger increase relative to defensive stocks for the month. In the second half of September, assets influenced by China, such as Chinese stocks and copper, performed the strongest in terms of standard deviation returns. Broad stock indices and credit spreads also showed relatively strong returns.

However, since the beginning of October, a pro-cyclical repricing led by inflation breakevens and oil - our interest rate team believes that long-term US inflation bulls may be a potential hedge against tariff risks. The US dollar has also strengthened against both cyclical and "safe haven" currencies.

Goldman Sachs is optimistic about the returns of risk assets for the next year, adjusting the stock and credit ratings from neutral to overweight for the next three months. At the same time, due to potential market volatility, hedging should be done selectively.

Although it is currently in the late stage of the economic cycle, which usually means that growth may slow down, it is believed that the stock market still has the potential to achieve good investment returns through the growth of corporate profits, the improvement of valuations, and some structural growth opportunities. In contrast, the returns of credit assets may be relatively limited.