Goldman Sachs Cuts Risk Positions Amid Trade War Volatility

Goldman Sachs, a leading global financial institution, has taken steps to strengthen its risk management in response to market volatility triggered by the trade war initiated by Donald Trump. John Waldron, the firm's president and chief operating officer, announced in a podcast on Thursday that Goldman Sachs has moderately reduced its risk positions since Trump's announcement on April 2 to impose tariffs on its trading partners. This strategic move is aimed at preparing for further uncertainties in the market.

Waldron highlighted that the firm is prioritizing liquidity and adopting a more conservative approach. He noted that the reduction in risk appetite will be most evident in capital markets and client transaction facilitation. Goldman Sachs is preparing for continued uncertainty in the coming months, which means maintaining a larger liquidity buffer.

In another media interview, Waldron shared his views on the current U.S. economy. He predicted a scenario of "slowflation," where economic growth rates would be between 1% and 1.5%, and inflation rates would be around 3%. He clarified that this is not a stagflation scenario, as it is less harmful than the high inflation and economic stagnation experienced in the 1970s.

The trade war has led to significant market volatility, benefiting Goldman Sachs and other financial institutions with increased revenues from stock and debt transactions. However, the uncertainty surrounding U.S. trade policies and their economic and financial impacts has caused companies to delay investments and acquisitions, reducing the fee income from mergers and acquisitions consulting and stock issuance for investment banks.

Waldron described the tariff measures as "extremely destructive." He noted that companies are now making business decisions based on the assumption that tariffs could rise to 10% to 15%. He predicted that the market is entering an adjustment phase, where decisions regarding capital expenditures, mergers and acquisitions, capital returns, and stock buybacks will be more prevalent.

Waldron also warned about the risks associated with the increasing U.S. government deficit and its potential to lead to a sell-off in U.S. Treasuries. He joined other financial executives in urging the government to reduce the deficit. He stated that the current trajectory of the deficit is unsustainable and that the bond market is already concerned about this issue.

When asked if investors are withdrawing funds from U.S. assets due to concerns over tariffs and the deficit, Waldron mentioned that Goldman Sachs' clients are looking to reduce their overall allocation to U.S. assets and hedge their dollar risk exposure. He noted that while this is a minor behavioral change in asset allocation, the more destructive and prolonged the policy, the more significant the changes could become.