Goldman Sachs upgraded its rating on global equities to "overweight" on prospects of economic growth and recovery in manufacturing activity, after starting the year with a "neutral" rating across assets.

Recent data has shown signs of improvement in global manufacturing activity, including in the United States, and market participants will assess incoming economic data to determine the trajectory of interest rate cuts of major central banks.

"We expect growth to become a more important driver of risk appetite and equity/bond correlations should be more negative this year," Goldman said in a note dated Feb. 16.

The brokerage added that monetary policy easing cycles have historically been supportive for risky assets but may be less so this year, "as markets have already pre-traded much of the rates relief."

Traders see about a 51.3% chance for the U.S. Federal Reserve to cut interest rates by 25 basis points in June, according to the CME FedWatch tool.

However, the potential for global earnings growth remains 'relatively muted' due to falling revenue growth and minimal room for margin improvement, Goldman said, although adds that global economic growth creates 'upside risks' to earnings growth.

"While equities have digested higher bond yields so far with better growth, there is a risk of shifting back to a ‘good news is bad news’ regime," Goldman cautioned.

The brokerage also downgraded global credit assets to "underweight" from "neutral."

"Tight credit spreads are likely to become a speed limit to returns," the brokerage noted.

Goldman reiterated its "neutral" rating on longer-dated global bonds and commodities.

(Reporting by Siddarth S in Bengaluru; Editing by Eileen Soreng)