Goldman Sachs' Stock Picks and Safety

Muhammad Zamir Assadi

Goldman Sachs’ September list of top stock picks looks less like a vote of confidence in American dynamism than as insurance against its fragility. As part of its routine monthly adjustment, the bank added McDonald’s, Walmart, and Valero Energy to its “most favored” list, alongside Cadence Design Systems. With two defensive consumer names alongside an energy major, does it suggest investors are quietly preparing for a weaker economy?

Looking at the surface, America still projects strength. GDP growth in the second quarter clocked in at an annualized 3.3%, according to the U.S. Bureau of Economic Analysis (BEA), an improvement from the first quarter’s slight contraction. But beneath that veneer lie troubling signs. Job creation is slowing. August payrolls grew by just 22,000, as per the U.S. Bureau of Labor Statistics (BLS), and the unemployment rate ticked up to nearly a four-year high of 4.3%.

Quarterly, consumers remain active, with personal consumption expenditures (PCE) price index increased 2.0 percent in Q2 (BEA data). The Census Bureau's Advance Retail Sales Report for August showed consumer spending was higher than expected, with headline sales rising 0.6% versus the expected 0.2% monthly growth.

Yet, inflation heated up in August as the headline figure for the Consumer Price Index rose to 2.9% year-over-year, sluggish real wage growth of 1.2% over the past year (BLS data), and a personal savings rate of only 4.4% (BEA data) suggest that households are increasingly stretching their finances to maintain spending.

This backdrop explains Goldman’s picks. Walmart is a classic recession play. Its low-cost model attracts households trading down from pricier retailers when budgets tighten. McDonald’s benefits from the same logic. Analysts once described fast food as the “ultimate affordable indulgence,” one that holds up even when consumers cut back elsewhere. Valero Energy, America’s largest independent petroleum refiner, provides a hedge of another sort, that is, steady cash flow in a volatile energy market, bolstered by continued demand for fuel even in downturns.

That two of the headline additions are dividend-paying consumer staples underscores a growing anxiety. Investors are privileging predictability over promise. It contrasts sharply with Goldman’s earlier VIP baskets, which were dominated by technology and communications firms. True, Cadence Design Systems, an essential supplier of chip-design software, remains a nod to the AI boom. But its inclusion looks like the exception that proves the rule. Defensive resilience, not growth exuberance, defines this month’s choices.

History shows why. During the 2008 financial crisis, Walmart’s sales rose as middle-class Americans sought cheaper groceries and household goods, while McDonald’s same-store sales growth outperformed the broader restaurant sector. Fast forward to today, and the consumer environment feels eerily familiar.

The Federal Reserve insists that a “soft landing” remains achievable. Policymakers highlight cooling inflation (2.9% year-on-year in August), down from over 9% at the 2022 peak, as evidence of progress. The Trump administration, meanwhile, has been busy celebrating. The White House even issued a statement titled “Absolute Blockbuster: New GDP Report Shows Explosive Growth in Trump’s Economy,” touting the 3.0% second-quarter growth as proof of resilience.

But markets are less sanguine. The yield curve remains inverted, historically one of the most reliable recession indicators. Bond investors appear unconvinced by official optimism.

Goldman Sachs’ move, then, should be read less as an endorsement of McDonald’s Happy Meals or Walmart’s rollback prices and more as a barometer of sentiment. Wall Street is preparing for consumer downgrading, a migration away from discretionary splurges toward affordable essentials. If households continue to tighten belts, these companies stand to gain market share even as the broader economy falters.

The broader question is whether this drift into defensive names will harden into a full-fledged slowdown. Rising household debt, stagnant wage growth, and tightening credit all suggest that consumers, the backbone of the U.S. economy, are coming under strain. If consumers are under strain, Goldman’s tilt toward defensive plays starts to look less like caution and more like foresight.