Goldman Sachs Research Decoded: Better-Than-Expected Non-Farm Payrolls Dampen Rate Cut Expectations, Gold Strengthens Against the Trend Amid Rising Yields

By Rita

In August, U.S. non-farm payrolls added 162,000 jobs, significantly exceeding expectations, while the unemployment rate remained steady at 4.1%. This report has increased the probability of a September rate hike, despite the White House publicly calling for a rate cut. The most anomalous market signal comes from gold, which continued to rise even as the 10-year U.S. Treasury real yield persistently climbed. On September 7, Goldman Sachs released its GOAL Monthly Asset Allocation Report, noting that the summer pro-cyclical rotation continues but has slowed. Commodities led cross-asset performance, with European natural gas and refined products posting the largest gains, driven by tensions in the Strait of Hormuz.

Significant shifts in sector leadership have occurred within the stock market. The momentum factor experienced a sharp pullback, with capital rotating from tech stocks into non-tech and defensive sectors. Energy led the way, while financials and healthcare emerged as the strongest industries outside the energy sector. Global sovereign bonds were sold off, with long-end yields approaching post-global financial crisis highs, primarily driven by higher real yields and term premiums. Goldman Sachs attributes the rise in bond yields to strong nominal growth, fiscal concerns, and crowding-out effects from debt issuance related to AI.

Non-Farm Payrolls Beat Expectations, Probability of Rate Hike Rises

August non-farm employment added 162,000 jobs, substantially surpassing market expectations. Data for prior months was also revised upward, with the unemployment rate stabilizing at 4.1%. This report has bolstered market expectations for a September rate hike, contrasting with the White House's public stance favoring rate cuts.

This week, market focus will shift to U.S. PPI and CPI data, along with policy decisions from central banks such as the European Central Bank. Goldman Sachs economists project that both core CPI and PCE will see month-over-month increases of around 0.2% in August. They anticipate no immediate rate hike, though uncertainty surrounding the policy path has risen significantly. The market-implied probability of a September rate hike has risen from 30% to slightly above 50%.

Commodities Lead, Gold Strengthens Against the Trend

Commodities have been the brightest asset class over the past three months. European natural gas and refined products posted the largest gains, pushed higher by tensions in the Strait of Hormuz. Grains also recorded significant advances, and agricultural commodities broadly performed strongly. Goldman Sachs notes that if the "super El Niño" persists, it will exacerbate supply risks concentrated in specific agricultural markets, particularly sugar, potentially driving up food price inflation. For European natural gas, mild winter temperatures would help alleviate gas storage pressures.

Gold stands out as the most noteworthy anomaly. Historically, gold exhibits a negative correlation with U.S. Treasury real yields; this time, prices rose even as real yields climbed. Goldman Sachs believes that U.S. Treasury interventions in the foreign exchange (yen) and long-end Treasury markets have increased demand for safe-haven assets such as gold, the Swiss franc, and Bitcoin. Goldman Sachs has upgraded its allocation for gold from neutral to overweight, setting a 12-month target price of $5,275 per ounce, implying approximately 19% upside potential.

Stock Market Rotation Slows, Momentum Factor Pulls Back Sharply

A defining feature of the summer stock market rotation has been the sharp pullback in the momentum factor. Previously crowded long positions in tech stocks were unwound en masse, with capital rotating into sectors like energy, financials, and healthcare. The S&P 500 remains range-bound, masking significant underlying shifts in leadership.

Goldman Sachs Global Equity Strategist Peter Oppenheimer notes that earnings growth is spreading from AI infrastructure to a broader range of industries. During the Q2 earnings season, median S&P 500 companies saw earnings per share grow by 14%, while earnings growth for the remaining stocks, excluding AI infrastructure, also hit a cycle high. Market breadth is improving, which forms the core thesis supporting a pro-cyclical allocation.

Goldman Sachs maintains an overweight recommendation on U.S., Asia Pacific ex-Japan, and Japanese equities, while underweighting Europe. The Asia Pacific ex-Japan index has a 12-month target of 1,120 points, implying roughly 26% total return potential. The Japanese Topix index has a target of 4,600 points, implying about 12% upside space.

Bond Yields Rise, Credit Spreads Tighten

Global sovereign bonds faced selling pressure during the summer, with long-end yields nearing post-financial crisis peaks. Goldman Sachs points out that the rise in yields was primarily driven by real yields and term premiums, rather than inflation expectations. U.S. 10-year Treasury yields rose from 4.3% at the end of June to around 4.8%. Goldman Sachs forecasts that 10-year U.S. Treasury yields will fall back to 4.26% over the next 12 months, delivering approximately 6% in total returns.

Regarding credit bonds, both U.S. investment-grade and high-yield segments receive overweight recommendations. While yields are rising, credit spreads continue to tighten, indicating robust corporate fundamentals. Goldman Sachs projects 12-month total returns of approximately 9.5% for U.S. investment-grade bonds and 7.6% for high-yield bonds.

Allocation Recommendations

Goldman Sachs maintains a pro-cyclical allocation framework amid the current macroeconomic environment. Within equities, it recommends overweighting U.S., Asia Pacific ex-Japan, and Japanese stocks, while underweighting Europe. For fixed income, it advises overweighting U.S. and German government bonds, underweighting Japanese government bonds, and overweighting U.S. investment-grade and high-yield credits. Within commodities, gold is overweight, while crude oil and copper are neutral. In currencies, the U.S. dollar remains supported by rate hike expectations, while the euro faces downward pressure.

Goldman Sachs' allocation rationale is as follows: strong nominal growth continues to support risk assets, while rising yields and energy prices are increasing cross-asset volatility. Gold's counter-trend strength amid rising yields serves as a critical signal of shifting market narratives. When safe-haven assets no longer follow traditional pricing rules, it implies that something more fundamental is changing.

Disclaimer

This article is a compilation and interpretation by Chaoxiang Research of a third-party brokerage research report (Goldman Sachs, September 7, 2026), combined with an overview of public market information. The ratings, target prices, earnings forecasts, and related judgments cited herein reflect only the views of the respective brokerage analysts, represent solely the stance of their affiliated institutions, do not constitute the views of Chaoxiang Research, and should not be construed as investment advice.

Investment involves risks, and decision-making must be independent. This article should not serve as the basis for buying or selling any securities.