Indexed Return of Cyclicals vs. Defensives and Consensus Forward 4-Quarter U.S. GDP Growth Markets are leaning toward a steady growth outlook. The gap between cyclicals and defensives points to U.S. real GDP growth of about 1.8%, broadly in line with Goldman Sachs’ 1.9% forward 4Q GDP growth forecast. Image: Goldman Sachs Global Investment Research
Cyclical Minus Defensive Sectors Positioning At the 52nd percentile, sector positioning shows a market in balance, with no meaningful shift toward either cyclicals or defensives, pointing to a lack of strong conviction. Image: Deutsche Bank Asset Allocation
Cyclicals vs. Defensives Cyclicals have become as pricey as defensives, leaving them vulnerable if confidence falters. Higher energy costs or trade disruptions could worsen the pressure by dampening activity. Image: Goldman Sachs Global Investment Research
Valuation – S&P 500 Shiller Cyclically-Adjusted P/E Ratio vs. Model-Predicted P/E Ratio U.S. equities look expensive relative to both their own history and what today’s macro backdrop would normally justify. In past cycles, such stretches of pricey valuations have often been followed by years of subpar returns. Image: Goldman Sachs Global Investment Research
S&P 500 Earnings Yield Based on Shiller Cyclically-Adjusted P/E The S&P 500’s earnings yield, based on Shiller’s cyclically adjusted P/E, sits near century lows. But if history is any guide, valuations can defy gravity for years. Just remember the late ’90s. Image: Bloomberg
Cyclicals vs. Defensives – 12-Month Forward P/E Premium Cyclical stocks are leading the way in 2025, leaving defensives behind as optimism returns to markets. In the U.S., that surge has lifted cyclicals to a valuation premium over safer plays. Image: Goldman Sachs Global Investment Research
Valuation – Shiller Cyclically-Adjusted S&P 500 Price-to-Earnings Ratio By the Shiller CAPE’s measure, U.S. stocks are back in the stratosphere — the kind that’s thrilled investors on the way up, and burned them on the way down. It’s a level that has often meant thinner returns and rising risk. Image: Goldman Sachs Global Investment Research
S&P 500 Cyclical-Adjusted P/E Ratio vs. Net Private Foreign Inflows to U.S. Equities If foreign capital inflows weaken or reverse, U.S. stock valuations could come under downward pressure as investors reassess risk amid high prices and seek alternatives. Image: Bloomberg
Nominal 10-Year U.S. Treasury Yield and Indexed Return of Cyclicals vs. Defensives Higher growth expectations raise bond yields because investors demand greater compensation for potential inflation and uncertainty about future interest rates. Image: Goldman Sachs Global Investment Research
Cyclicals vs. Defensives Performance Cyclical sectors’ strong performance suggests economic optimism, but investors must be cautious about potential overvaluation and risks, especially when buying cyclical stocks late in the economic cycle. Image: Goldman Sachs Global Investment Research
Indexed Return of Cyclicals vs. Defensives ex. Commodities and ISM Manufacturing Index U.S. equity sector rotations are pricing in a “no landing” economic scenario, where the U.S. economy avoids both recession and significant slowdown, maintaining steady growth instead. Image: Goldman Sachs Global Investment Research