By Eman Abouhassira

(Bloomberg) -- Global equities are likely to extend a rally into the year end given a resilient US economy, supportive valuations and a dovish pivot from the Federal Reserve, according to Goldman Sachs Group Inc. strategists.

The team including Christian Mueller-Glissmann turned overweight on stocks over a three-month horizon, as they said the asset class typically performed well in late-cycle economic slowdowns when policy support was strong.

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“Good earnings growth, Fed easing without a recession and global fiscal policy easing will continue to support equities,” the team wrote in a note. “With anchored recession risk, we would buy dips in equities into year-end.”

They downgraded credit to underweight from neutral over the short term, and retained a bullish recommendation on equities over 12 months. While equity valuations can overshoot current levels, it’s a constraint for credit. The team is less bearish about credit over 12 months, citing the relatively low recession risks a helpful supply/demand set-up.

Global stocks have scaled record highs on optimism that the Fed has started cutting interest rates in time to avert a recession. Renewed enthusiasm around artificial intelligence has also powered technology heavyweights, prompting a slew of US forecasters to boost their estimates for the S&P 500.

Goldman’s US strategists also raised their target for the equity index earlier this month, expecting it to gain another 2% to 6,800 points over three months.

However, with the US labor market beginning to cool, focus will be on the next corporate earnings season for clues on the impact of global tariffs. Analysts expect S&P 500 earnings to rise 7.1% year-over-year in the third quarter, the smallest increase in two years, according to data compiled by Bloomberg Intelligence.

The Goldman team also warned of lingering risks from a growth or rates shock over the near term. They remain neutral across regions, and reiterated a preference for international diversification.

--With assistance from Sagarika Jaisinghani.

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