Mid-year outlook: diversify and hedge

What will the second half of the year bring for markets, and how should investors position now? I'm Allison Nathan, and this is Goldman Sachs Exchanges. I'm joined once again by Christian Mueller Glissmann, who heads asset allocation research in Goldman Sachs research, and by Alexandra Wilson Elizondo, co chief investment officer of the multi asset solutions business in Goldman Sachs asset management. For A Change, I am in London this week, and Christian and I are both in the London office, and and Alexandra is joining from our New York studio. This has become a biannual event, and I'm looking

Great to have you in London. Thanks

so much for having us.

So let's get started. Christian and Alexandra, when we last spoke in January, you both emphasized that investors should really be thinking about diversifying away from the mega cap US tech companies that everyone was so focused on into different stocks, different assets, even different geographies. And that's turned out to be a pretty good strategy if you look back to the first half of the year. But there's been a lot of unexpected shifts in terms of US policy, in terms of the economy. And given those unexpected shifts, you know, what has surprised you most about the market reaction to them? I

don't know.

Christian, maybe you can kick us off. Yeah.

No. I think you're absolutely right. Like, there's two value adds that we can bring as asset allocators to the portfolio, either market timing or diversification. And I think diversification has worked really, really well, as you said, but market timing was very tough. And what really surprised me is the speed of some of those moves. I think we clearly have seen surprising policy shifts. There's no doubt about that. We even have geopolitical risks that have entered, the the the picture in the last few days and weeks. But but I think really the the the speed of some of the moves we've seen have

Yeah. I think to your earlier point, both Christian and I were not surprised by the volatility just given that there were such a high level of execution risk around the economic policy by the administration. But what's really surprised us has been this rare convergence of structural, geopolitical, and macro tailwinds that have driven ultimately, you know, some of the market behavior that one wouldn't expect in a drawdown. So the two places I would draw attention to are the safe haven status of the US dollar, in particular, how it's, you know, not performed with its rate beta or the level of ra

Yeah. I mean, in general, we have had a year where equities, dollar, and bonds sold off together, which, as you just noted, I was in there. That's very unusual. I mean, Christian, do you have thoughts about that convergence as well in terms of, these moves?