In a recent note to clients, Goldman Sachs analysts provided investors with three investment recommendations heading into the fourth quarter.
Firstly, they stated that investors should take advantage of low options prices to reduce risk while maintaining upside exposure.
"Given the potential for a choppy market in coming months, investors should consider put spreads," the analysts wrote. "In conjunction with our options strategist...we recently discussed how this structure allows investors to hedge against modest near-term downside risk without spending additional premium to protect against a major equity downturn, which appears unlikely."
Secondly, they believe investors should own stocks that are returning cash to shareholders rather than companies spending on capex and R&D.
"When investors perceive there to be little economic slack late in the cycle, investors are generally skeptical of large plans to invest for growth due to uncertainty about the likely returns on those investments," they stated. "Instead, in these environments, investors usually reward firms returning cash to shareholders."
Finally, the analysts recommend investors avoid companies vulnerable to rising interest expenses.
"Our rates strategists believe there has been a structural shift higher in the equilibrium level of interest rates," they said. "'Higher for longer' interest rates will create pressure on firms with weaker balance sheets, but improving economic growth expectations have outweighed that risk for many stocks YTD."