Goldman Sachs has recommended using put options on select stocks and ETFs as a strategy to hedge against potential growth risks in the current market environment.

The firm has pinpointed specific stocks and ETFs that are highly sensitive to U.S. growth, which present attractive hedging opportunities due to their relatively low options prices.

Concerns about growth slowdowns are mounting among investors, particularly as the unemployment rate is projected to reach 4.3% by mid-2024.

Reflecting economic weakness and rising unemployment, Goldman Sachs has raised its 12-month recession probability forecast to 25%.

Investors are encouraged to focus on macroeconomic indicators ahead of the upcoming September FOMC meeting, moving away from microeconomic factors such as earnings.

Although the volatility index has decreased by 23 points since early August, high implied volatilities continue to complicate the search for cost-effective hedges.

The recommended put options are particularly aimed at covering significant upcoming events, including the September and November FOMC meetings and the U.S. presidential elections.

Goldman Sachs has cautioned investors about thematic risks, especially the potential downturns in mega-cap tech stocks and the impact of rising interest rates on the market.

Despite the increased risks of recession, Goldman Sachs believes that major financial imbalances are limited, viewing recession risks as somewhat controlled.

Put options are also suggested to mitigate risks associated with the elevated prices of interest rate options when compared to historical averages.

Analysts recommend tactical hedges through put options for tech stocks, which are currently facing high valuations despite recent underperformance.

KeyCorp, AerCap Holdings NV, and Fifth Third Bancorp have been highlighted as particularly appealing stocks for put options due to their sensitivity and low implied volatility.

In the ETF sector, Financials, Consumer Discretionary, and Materials ETFs are recommended for hedging, as they exhibit high correlation to U.S. growth and lower options prices.