How Goldman Sachs’ John Waldron is navigating “a more uncertain time”

U.S. Economic Outlook:

• The U.S. economy is demonstrating significant resilience despite predictions of recession following the April "Liberation Day" tariff shocks.
• Key stabilizing factors include strong employment, continued government fiscal spending, and healthy consumer behavior.
• Goldman Sachs does not currently foresee an imminent recession in the U.S. baseline scenario.
• Two primary variables remain the biggest uncertainties for future growth: the ultimate effective tariff rate and the trajectory of longer-term interest rates.

Tariffs and Trade Policy:

• The "Liberation Day" tariff announcements caused a significant, immediate pause in corporate strategic planning and capital investment.
• Executives are currently in a transition phase, moving from a "pause" to an "adjustment" phase as effective tariff rates stabilize in the 10% to 15% range.
• Capital investment, M&A, and long-term strategic decisions remain constrained until the trade policy landscape becomes more predictable.
• Recent market activity shows a thaw in risk appetite, with approximately 10 IPOs priced in the last 7–10 business days, all pricing and trading well.
• Global supply chain adjustments are complicated; companies previously moving supply chains to Vietnam or Mexico to avoid China tariffs now face similar high rates in those regions.
• Corporate leaders are hesitant to approve new capital-intensive projects with long durations due to lingering policy uncertainty.

Interest Rates and Fiscal Deficits:

• Goldman Sachs views the current U.S. fiscal deficit of over 6% of GDP as unsustainable in non-stimulative economic conditions.
• The firm observes a lack of political will in both major parties to reduce spending, despite public commendation for deficit-reduction rhetoric from the administration.
• Rising long-end bond yields are interpreted as the bond market reacting to fiscal concerns rather than inflation expectations.
• There is a concern that rising duration and rate curves in the U.S. and Japan could act as a brake on future economic growth.

Global Capital Allocation and Asset Flows:

• The perception of "U.S. exceptionalism" has faded, leading to a marginal re-evaluation of over-allocated dollar holdings by global asset allocators.
• Clients are increasingly considering hedging strategies and reducing over-allocation to U.S. assets, though the fundamental shift remains at the margin.
• Europe is seeing increased investor interest, particularly regarding Germany's potential fiscal expansion, but U.S. GDP growth remains superior, making the European bet a wager on future relative growth rather than current data.
• The firm advises caution, noting that Europe currently grows slower than the U.S. and lacks hard data to justify significant over-allocation.

Capital Markets Activity:

• Q1 2024 saw capital market volumes surge 30–50% year-over-year before the April tariff shock chilled the market in Q2.
• Recent IPO pipeline shows signs of repair, with strong performance in the most recent offerings suggesting returning risk appetite.
• Goldman Sachs expects the summer to be busier than conventional wisdom predicts, provided no further exogenous policy shocks occur.
• Despite the positive signs, the firm maintains caution, noting that pipeline volume does not guarantee transaction fruition in uncertain environments.

Goldman Sachs Risk Management Strategy:

• The firm has moderated its own risk positioning since April 2nd to align with the increased market uncertainty.
• Goldman Sachs employs a "three P" framework: People, Preparation, and Process, emphasizing scenario planning and stress testing.
• Risk management teams are given equal standing to commercial business leaders, ensuring robust oversight without compromising business velocity.
• The firm maintains a strict "mark-to-market" culture, pricing balance sheet assets and liabilities daily to clarify true value and liquidity options.
• The firm is pairing client risks, increasing liquidity buffers, and maintaining a "two-footed" approach to balance risk absorption with capital preservation.

Corporate Strategy Pillars:

• One Goldman Sachs: The firm prioritizes a client-centered approach and "share of wallet" rankings over immediate revenue, betting on long-term rewards for excellence.
• Durable, Differentiated Businesses: The strategy focuses on stabilizing revenue streams; the standard deviation of global markets risk intermediation results dropped from 24% (prior 10 years) to 6% (last 5 years).
• Scale and Infrastructure: Heavy investment in technology, automation, and operational infrastructure is underway to generate long-term scale economies despite short-term costs.
• Revenue composition is shifting toward sticky sources, with management fees now exceeding $10 billion on a firm revenue base of approximately $54 billion.

Leadership and Operational Evolution:

• President and COO John Waldron emphasizes that effective crisis leadership requires communication across multiple channels, moving beyond email to town halls, podcasts, and in-person interactions.
• Waldron is increasing his travel footprint to engage with the firm's global front lines rather than operating solely from the New York headquarters.
• Leadership is increasingly focused on the operational and technological complexity of the firm, recognizing that technology deployment will define future success.
• The firm operates as a "people firm," with culture and human capital identified as the primary manufacturing assets.

Forward-Looking Statements:

• Goldman Sachs projects a more active capital markets environment over the next seven weeks, contingent on the absence of disruptive policy events.
• The firm expects to continue navigating a volatile environment by leveraging its 156-year history of risk management and financial resilience.
• Waldron suggests that the current uncertainty will eventually lead to a "re-underwriting" of business plans for 2025 and beyond as tariff and rate trajectories clarify.