AI: To buy or not to buy?

How to hedge the US election. # # --------------------------------------------------------------- The key takeaways today: - How to hedge portfolios ahead of the US presidential election - The Fed's rate cuts are a relief for real estate - AI stocks aren't in a bubble - The qualities that Sequoia Capital seeks in companies - Goldman Sachs interns believe AI is a "net positive" - Briefings Brainteaser: How many companies have appeared in the Fortune 500 list every year since 1955? Was this newsletter forwarded to you? [Sign up now](. --------------------------------------------------------------- How to hedge ahead of the US presidential election It's common for investors to hedge their portfolios ahead of US presidential elections, [according to Shawn Tuteja]( who oversees ETF and custom baskets volatility trading within Goldman Sachs Global Banking & Markets. “Investors – especially professional investors – hate to lose money around foreseen events, because that can be a lot harder to justify,” Tuteja says. “As such, it's common to see people put on hedges into election day and around election day. This drives the prices of options higher, and thus leads to a higher VIX.” After an election, market volatility and the VIX Index, used as a barometer for market uncertainty, tend to cool off. But even as they do, “big moves can happen under the surface,” Tuteja says. He points out that the correlations among S&P 500 sectors fell sharply after the 2016 and 2020 elections. Tuteja explains that “as the winner takes office, their specific policy agenda becomes more relevant.” This dynamic can be seen in the disparate performance of the Goldman Sachs Democratic Policy and Republican Policy baskets following the 2016 election results. Given this post-election dynamic, “it might not be enough to put on broad-market hedges,” Tuteja says. “If you're looking to hedge, it's really important to put on specific hedges to the positions in your actual portfolio.” --------------------------------------------------------------- Are falling interest rates a salve for real estate? Lotfi Karoui (L) of Goldman Sachs Research and Jeff Fine (R) of Goldman Sachs Asset & Wealth Management with Allison Nathan on Goldman Sachs Exchanges The Federal Reserve has begun its long-awaited interest rate cutting cycle, providing some relief to rate-sensitive sectors. The US commercial real estate sector should see some relief as rates on floating-rate loan portfolios reset lower, although much of the lower rates have already been priced in, Lotfi Karoui, who leads the credit, mortgages, and structured products team for Goldman Sachs Research, says on [Goldman Sachs Exchanges](. “The bulk of CRE loans are actually fixed-rate structures, and so they are a lot more linked to the belly or the back end of the curve as opposed to the level of policy rates,” Karoui says. “And so the relief has been delivered already, strictly speaking.” Meanwhile, the CRE market is still facing a record amount of maturing loans, but a pickup in transactions and the lower rates should help stabilize values, says Jeff Fine, global co-head of Alternatives Capital Formation in the firm's Asset & Wealth Management business. “We should be able to manage through much of that wall. Not all of it,” Fine says. “And so there will be equity loss in certain of those places, but it's not going to be industry-wide the way it was coming out of the financial crisis.” In case you missed it: Read [our previous article]( on Goldman Sachs Research's forecast for US house prices in 2025. --------------------------------------------------------------- AI stocks aren't in a bubble The soaring performance of a handful of tech stocks has prompted investors to ask: Are AI stocks in a bubble? Despite their meteoric rise, these companies aren't caught up in a bubble, [writes Peter Oppenheimer]( Goldman Sachs Research's chief global equity strategist and head of macro research in Europe. But that shouldn't stop investors from diversifying, particularly to other sectors that will enjoy AI-related benefits. The technology sector has generated 32% of the global equity returns and 40% of the US equity market returns since 2010. Oppenheimer says this comes down to stronger financial fundamentals rather than irrational market speculation. The global tech sector's earnings per share have risen about 400% from its peak before the great financial crisis, while all other sectors together have risen 25% during that span. That said, the unusual concentration of market capitalization among a few companies is unusual and is a risk to investors, Oppenheimer writes. “With markets being increasingly dependent on the fortunes of so few, the collateral damage of stock-specific mistakes is likely to be particularly high,” he writes. He points out that there are plenty of companies outside the tech sector that have high margins and returns on investment, that reinvest for future growth, and that have strong balance sheets. Healthcare and biotech companies, meanwhile, are also likely to benefit from AI innovation. Likewise banks and financial companies may be able to improve their return on equity by adopting AI. New consumer products and services are likely to emerge, eventually, on the back of these technologies. There are signs that AI will provide better cybersecurity, and allow for the development of much more sophisticated robotics. In case you missed it: Read [our previous report]( on whether AI is seeing too much spend for too little benefit. --------------------------------------------------------------- Two traits Sequoia Capital wants to see in companies Roelof Botha, managing partner and steward of Sequoia Capital, with Goldman Sachs' Ken Hirsch on Goldman Sachs Exchanges: Great Investors Sequoia Capital has invested in, and helped build, many of the most successful companies in Silicon Valley. In fact, the companies that Sequoia has backed since it was founded in 1972 now make up more than a quarter of Nasdaq's market capitalization. On the latest episode of [Goldman Sachs Exchanges: Great Investors]( Roelof Botha, managing partner and steward of Sequoia, shares his insights on what makes Sequoia unique. When Goldman Sachs' Ken Hirsch asks what characteristics the most successful companies share, Botha reflects on what he calls the “authenticity of the founder,” explaining that “the term that we've used at Sequoia is founder-problem fit, rather than founder-market fit.” When considering investing in a founder's company, he asks, “How does this founder understand this problem? Why you? How did you come up with this idea and why is it so personal to you? Why is it so visceral?” The other key trait is the speed at which a company executes. “Is [this a] company where. [when] you show up at a board meeting a month later, they've exceeded the expectations of what you thought they might accomplish in the last month? Or is this a company where ideas percolate and six months later, you're still talking about the same ideas, but nothing has happened? Velocity. It's just so crucial.” --------------------------------------------------------------- Goldman Sachs interns believe AI is a “net positive” Goldman Sachs' summer interns this year believe artificial intelligence tools will be “net positive,” with a clear majority of interns — 93% — believing that AI will serve to enhance the capabilities of human beings, rather than replacing them. In [a survey]( of approximately 2,100 summer interns at more than 45 Goldman Sachs offices worldwide, 88% said that AI will have a net positive impact on society, up 7% from last year's survey results. At the same time, an even bigger majority — 99% — said they believe AI should be “heavily” or “somewhat regulated.” In their personal lives, 93% of surveyed interns already use AI for various purposes. The top three personal uses of AI mentioned in the survey were: doing research, supporting writing projects, and checking code. --------------------------------------------------------------- Briefings Brainteaser: The all-timers The Fortune 500 list of the biggest companies in the US was first published in 1955. How many companies have appeared in the list every year since then? A) 7 B) 51 C) 104 D) 191 [Check the answer here](. --------------------------------------------------------------- Goldman Sachs in the news By clicking on these links, you will be redirected to external websites that Goldman Sachs does not own or operate. Goldman Sachs is not responsible for the products, services, or content provided on those sites. Please refer to each external website's terms, privacy and security policies for details. [CNBC]( Sep 20 Goldman Sachs' Sara Naison-Tarajano: Rate cut was 'a bit of a hedge' for the economy (4:17) [CNBC]( Sep 24 Watch CNBC's full interview with Goldman Sachs CFO Denis Coleman (9:03) --------------------------------------------------------------- # # --------------------------------------------------------------- Some of the images used in this newsletter are sourced via Getty Images. The opinions and views expressed in this newsletter may not necessarily reflect the institutional views of Goldman Sachs or its affiliates. The information provided in this newsletter is for informational purposes only and does not constitute a recommendation from any Goldman Sachs entity to the recipient. Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this newsletter or to its recipient. 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