Investing.com -- Goldman Sachs says the risk of a deeper market downturn remains contained despite recent pressure on global assets.

According to a note from Goldman's Christian Mueller-Glissmann, the bank’s Risk Appetite Indicator moved above 1 earlier in the year before sentiment weakened on concerns over AI disruption, private credit, sharply higher oil prices and the Middle East war.

The result, the firm said, is fading confidence in a so-called Goldilocks backdrop.

The bank noted that these shocks have weighed on multi-asset portfolios, adding that “the risk of a larger 60/40 portfolio drawdown has increased.”

Still, Goldman Sachs believes long-term bear market risk remains limited.

The strategist wrote that its world portfolio proxy, which tracks about $300 trillion of global assets, has fallen by roughly $11 trillion since the start of the conflict, or about 4 percent.

The note stressed this is “still a small drawdown in a long-run context,” with far deeper declines historically tied to periods of high, sticky inflation or major equity market collapses.

Goldman Sachs expects energy prices to begin normalising from the second quarter and argued that “the risk of a sustained, large 60/40 drawdown is still limited.”

To mitigate ongoing stagflation risks, the firm recommended adding defensive equity styles and selected safe assets.

The bank also outlined hedging strategies, saying it is screening for options to protect against both left and right tails, including equity puts, CDS payers and selective call structures.