Goldman Sachs has raised its rating on global equities to "overweight," citing optimistic prospects for economic growth and recovery in manufacturing activity. The upgrade comes after the investment firm began the year with a "neutral" rating across assets.

Recent data indicating improvements in global manufacturing activity, particularly in the United States, has bolstered confidence in the economic outlook. Market participants are closely monitoring incoming economic data to gauge the potential trajectory of interest rate adjustments by major central banks.

Goldman Sachs stressed on the increasing importance of growth as a driver of risk appetite, anticipating more negative equity/bond correlations this year. While historical trends suggest that monetary policy easing typically supports risky assets, the brokerage cautioned that this effect may be tempered in 2024, given the pre-trading of anticipated rate relief by markets.

According to the CME FedWatch tool, traders currently assign a roughly 51.3 per cent probability of a 25 basis points interest rate cut by the US Federal Reserve in June.

However, Goldman Sachs highlighted that global earnings growth remains relatively subdued, attributed to declining revenue growth and limited margin improvement opportunities. Nonetheless, the firm acknowledged the upside risks to earnings growth stemming from global economic expansion.

Despite the positive outlook for equities amid better growth prospects, Goldman Sachs warned of the potential for a shift back to a "good news is bad news" scenario, cautioning against complacency in the face of evolving market dynamics.

Additionally, the brokerage downgraded its rating on global credit assets to "underweight" from "neutral," citing concerns about tight credit spreads potentially limiting returns.

Goldman Sachs maintained a "neutral" rating on longer-dated global bonds and commodities, signalling a balanced outlook for these asset classes amidst evolving market conditions.

(With Reuters inputs)