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Goldman Sachs is doubling down on its call for a December rate cut as labor market cracks widen, urging investors to stay overweight equities and buy market dips ahead of further policy easing in 2026.
On Monday, Goldman Sachs chief economist Jan Hatzius said the delayed September jobs report "may have sealed a 25bp cut at the December 9–10 FOMC meeting," especially after New York Fed President John Williams called for "a further adjustment in the near term."
After recent dovish signals from the Fed, traders are pricing in a 73% chance of a 25-basis-point cut in December, according to the CME FedWatch tool.
Hatzius said the labor market's underlying job growth trend has dropped to just 39,000 jobs per month, while college graduate unemployment is sharply up—especially among young workers, where the jobless rate has hit 8.5%.
Since college graduates account for over 40% of the labor force and most labor income, their job market deterioration could weigh significantly on consumer demand and increase the odds of further easing.
The firm expects the Fed to pause in January 2026, but to resume cuts in March and June, lowering the federal funds rate to a terminal range of 3–3.25%.
The outlook hinges on Goldman's baseline forecast for U.S. GDP growth to rebound to 2–2.5% in 2026, helped by "reduced tariff drag, tax cuts, and easier financial conditions."
On inflation, Hatzius said that "underlying inflation has fallen to near 2%," noting that the 2.8% core PCE rate in September includes distortions like "50–60bp from tariff pass-through and another 20bp from higher imputed financial services prices."
Goldman indicates that inflation will fall once tariff effects fade by mid-2026.
Goldman Sachs’ equity strategist Christian Mueller-Glissmann, said investors should brace for market setbacks through year-end, but emphasized this weakness is a buying opportunity.
The Invesco QQQ Trust (NASDAQ:QQQ) has fallen by more than 5% this month, on track for its worst month since March.
While noting that "equity drawdown risk has picked up recently," the analyst maintained a modestly pro-risk stance, saying, "With our friendly macro baseline into 2026, supported by policy easing, we would ‘buy the dip.'"
Goldman is overweight equities for both 3-month and 12-month horizons and underweight credit.
Looking ahead, he expects equities to be supported by earnings growth, Fed easing without a recession, and global fiscal stimulus.
Goldman forecasts global real GDP growth of 2.8% in 2026 and global core inflation falling to 2.2%, helped by easing tariffs, shelter and wage pressures.
Goldman's strategists also addressed the AI boom, concluding that while valuations are high, they're not in bubble territory. "Our global equity strategy team does not think AI stocks are in a bubble," Mueller-Glissmann said, pointing out that "most are profitable and have strong balance sheets."
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Image created using artificial intelligence via Midjourney.
Posted In: QQQ
