The outlook for markets in 2024

Investors turn bullish on equities # # --------------------------------------------------------------- Over the past week, Goldman Sachs released a number of outlooks for economies and financial markets worldwide. BRIEFINGS presents four outlooks for 2024 and beyond.  The key takeaways today: - Outlook: Financial markets aren't expecting a recession in 2024... - Outlook: ...as the US economy approaches a soft landing - Outlook: The UK economy, surprisingly resilient, will lag the US and EU - Outlook: Economic risks and AI disruptions loom on the investing horizon - Small-cap companies are poised to catch up - Investors turn bullish on equities - How the AI boom is different from the tech innovations of the past - Briefings brainteaser: What has been the best-performing commodity? Was this newsletter forwarded to you? ([Sign up now.]( --------------------------------------------------------------- Outlook: Bonds, credit, stocks, and commodities forecast to have 'modest' returns Goldman Sachs Research's [outlook for the global economy]( in 2024 is more optimistic than the consensus of economists surveyed by Bloomberg. But financial markets are already priced for growth that's somewhat comparable to what our economists expect, according to Dominic Wilson, a senior advisor in Goldman Sachs Research. “The market has adapted to the trajectory that we've been seeing,” Wilson says in an episode of [Goldman Sachs Exchanges](. From credit spreads to volatility and equity prices, “none of this is telling you that the market is putting a big weight on recessionary problems,” he says. That said, Wilson doesn't think the combination of continued economic growth and cooling inflation is fully reflected in financial markets. In the tug of war between already elevated valuations and favorable economic growth, “our view is pretty firmly that the macro will win out,” he says. [Goldman Sachs Research forecasts]( modest positive returns as their central case for bonds, credit, and equities — and a bit more than that in commodities. Why are our economists relatively optimistic about GDP growth? One reason is their view of how rate hikes filter through the economy. The team's research shows that the maximum impact of monetary tightening on the growth rate (as opposed to the level) of GDP occurs with a short lag of about two quarters. “If you've gotten past the maximum hit to growth, the economy is still standing, we're still growing at an okay pace, but we're still seeing a negative impact, I'm not going to be that concerned about that negative impact putting us into a recession, given that we've already survived the biggest hit,“ says Goldman Sachs Chief Economist and Head of Research Jan Hatzius. --------------------------------------------------------------- Outlook: The US economy is on its final descent to a soft landing After defying recession fears this year, the US economy is forecast by Goldman Sachs Research to easily beat consensus expectations again in 2024. US GDP is projected to expand 2.1% in 2024 on a full-year basis, compared with the consensus 1% forecast by economists surveyed by Bloomberg. “The conditions for inflation to return to target are in place, and the heaviest blows from monetary and fiscal tightening are well behind us,” David Mericle, Goldman Sachs Research's chief US economist, writes in [the team's report, titled 2024 US Economic Outlook: Final Descent](  Consumer spending is expected to be strong. Growth in business investment, driven by government subsidies this year, will slow. Existing home sales are expected to be very weak. Federal government spending is forecast to be roughly flat. A brighter spot may be demand for US exports, which could contribute 0.2 percentage points to GDP growth as foreign growth recovers.  --------------------------------------------------------------- Outlook: Will the UK economy keep up with the rest of Europe in 2024? The UK economy has shown surprising resilience, and its prospects have converged with other developed markets in some important respects, Jari Stehn, Goldman Sachs Research's chief European economist, writes in the team's report. However, relative to the US and euro area, [the UK is expected to lag on a number of fronts in 2024]( - Goldman Sachs Research [projects]( GDP growth (not annualized) of 0.1% in the first quarter, 0.2% in the second and third quarters, and 0.3% in the last three months of 2024. Our economists forecast the UK economy will expand 0.6% next year, which is notably above the Bank of England's forecast of 0.1%.   - But compared with the EU and US, the UK faces stickier inflation and a mortgage market that's more sensitive to monetary policy, as well as constraints on its labor market. The UK's GDP growth forecast of 0.6% is below that of the euro area (0.9%) and the US (2.1%) — and yet its expected core inflation, at 3.8%, is higher than the euro area's 2.6% and the US's 3.2%. --------------------------------------------------------------- Outlook: Investors face macroeconomic risks, geopolitical tensions, and AI disruptions in 2024 Higher-for-longer interest rates, an election supercycle, and disruptions from artificial intelligence call for an active investment approach with a focus on diversification and risk management, according to Goldman Sachs Asset Management. In the US, interest rates have likely reached their peak, and economic signals indicate a soft landing, the authors of [Goldman Sachs Asset Management's 2024 outlook write in their report, titled Embracing New Realities]( But the road ahead remains uncertain. With interest rates set to remain high for a while across advanced economies, rising capital costs will challenge business models that rely on high leverage, cheap borrowing, and ample liquidity. A focus on strong balance sheets will be important. A packed election calendar and geopolitical instability may result in more trade restrictions and economic fragmentation. The shifting geopolitical landscape is also likely to require new partnerships and operating models. “This creates potential public and private market investment opportunities across supply chain security, commodity and energy resources, and national security,” Goldman Sachs Asset Management writes. Investors will be able to evaluate investing in, and with, generative artificial intelligence. Semiconductors, cybersecurity, and healthcare offer compelling investment opportunities in 2024. More investors may seek to integrate new AI techniques to systematically analyze data to inform investment decisions. --------------------------------------------------------------- The case for a small-cap rebound After a year of substantial under-performance, [small-cap stocks could be primed for a significant comeback]( according to Greg Tuorto of Goldman Sachs Asset Management. “Small caps have not been a fun place to be in 2023,” Tuorto says. He explains that interest rate hikes provoked questions about whether small-cap balance sheets could withstand higher interest payments. In addition, innovation has been seen as being driven by larger-cap companies, with investors taking up the idea that the gains from AI and anti-obesity drugs will mostly accrue to the biggest players, he says. On the other hand, smaller companies may be in a better position to capitalize on transformative technologies, Tuorto says. “We think that small caps are a great place to access disruptive innovation, because these companies have significantly more leverage to the megatrends that are out there today.”   When it comes to rates, Tuorto points out that the Federal Reserve seems to have nearly completed its cycle of hikes, eliminating one major headwind for rate-sensitive companies.  Tuorto's conclusion? “It's time for small caps to play catch-up.”  --------------------------------------------------------------- November QuickPoll: Bulls return but for how long? For the first time since 2021, investors are feeling more bullish about equities, according to the Marquee November QuickPoll, which surveyed more than 600 institutional investors in early November. Its key findings include:  A return of the equity bulls: For the past two years, investors have been largely bearish on developed-market equities. This month, equities sentiment turned positive, with nearly 30% of respondents saying the best trade into year-end is to buy and hold equities. “Positive fundamentals and technicals could serve as strong tailwinds until year-end,” explains Oscar Ostlund, Goldman Sachs' global head of content strategy, market analytics, and data science for Marquee.  The end of the hiking cycle: The majority of investors believe the Federal Reserve has finished raising rates, with 75% now expecting the Fed to cut rates next year.  A soft landing: While investors had worried about the risk of the US economy falling into a recession for most of 2023, many have now pared back their fears. Only 2% of participants see negative GDP growth, though most still expect a slowdown, with growth in the 1% to 2.5% range. --------------------------------------------------------------- BlackRock's Tony Kim on the ‘dawn of a new intelligence era' Tony Kim of BlackRock and Michael Brandmeyer of Goldman Sachs Tony Kim, BlackRock's head of tech sector fundamental equities, has seen and invested in a lot of tech innovation: the buildout of the internet, the telecom boom, social media, SaaS, and the 3G, 4G, and 5G eras. But he sees the generative AI boom as something different. Whereas earlier tech innovation focused on building tools, utilities, and infrastructure, “for the first time, [gen AI] has an element of intelligence,” Kim says on [Goldman Sachs Exchanges: Great Investors](  Kim has been running BlackRock's global technology funds since 2013. He says AI investment will create new opportunities across the entire technology ecosystem, from semiconductors and foundational models to data infrastructure and applications. Kim also expects a quantum computing breakthrough in the next few years that will, among other things, generate a “mountain of synthetic data” to feed into AI models and build intelligence. “It's the next computing architecture,” he says. “This to me is that next evolution.”  --------------------------------------------------------------- Briefings Brainteaser: Best performing commodities Goldman Sachs Research forecasts the S&P GSCI — an index containing a broad spectrum of commodities from metals and energy to agriculture and livestock — will produce a total return of 21% over the next 12 months. Which of these commodities has had the highest return this year (as of Nov. 12)? A) Energy B) Precious metals C) Agriculture & livestock D) Industrial metals [Check the answer here.]( --------------------------------------------------------------- Goldman Sachs in the news [Reuters]( November 16 [Goldman CEO and predecessor Blankfein talk careers as analysts compete](#~:text=Goldman%20CEO%20and%20predecessor%20Blankfein%20talk%20careers%20as%20analysts%20compete,-By%20Lananh%20Nguyen&text=NEW%20YORK%2C%20Nov%2014%20(Reuters,given%20to%20charity%20on%20Tuesday) [Yahoo! Finance]( November 14 [Small business owners take action over federal regulations](# --------------------------------------------------------------- --------------------------------------------------------------- Some of the images used in this newsletter are sourced via Getty Images. The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. Goldman Sachs believes the data in this newsletter is accurate, but does not verify its accuracy independently and does not warrant or guarantee that it is accurate or complete. Goldman Sachs has no obligation to provide any updates or changes to the data. No investment decisions should be made using this data. Past performance is not indicative of future performance. To the extent this newsletter includes material from Goldman Sachs Global Banking & Markets, please [click here]( for information relating to Goldman Sachs Global Banking & Markets material and your reliance on it. The Investment Strategy Group, part of the Asset & Wealth Management business (“AWM”) of GS, focuses on asset allocation strategy formation and market analysis for GS Wealth Management. Any information that references ISG, including their model portfolios, represents the views of ISG, is not financial research and is not a product of GS Global Investment Research and may vary significantly from views expressed by individual portfolio management teams within AWM, or other groups at GS. To the extent this newsletter includes material from Goldman Sachs Asset Management, please [click here]( for additional disclosures. [Click here]( to unsubscribe. © 2023 Goldman Sachs, All rights reserved. 200 West Street, New York, NY 10282, USA --------------------------------------------------------------- [GS.comÂ]( |  [Careers Blog](  | [Privacy and Security](  | [Terms of Use]( [Twitter](