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MARKET PULSE 
|
September 2019

MARKET PULSE

Macro Views


US

Even with geopolitical noise blurring a favorable growth outlook, we think the US economic expansion could continue to grow at a pace of 2.4% through year-end 2019. US-China trade developments remain a source of risk to profit margins and growth. In our opinion, it may require policy action beyond Fed intervention to contain impact on household consumption and business activity. Read More

EUROPE

We expect the ECB to ease monetary policy and provide fiscal stimulus to combat the slowing Euro area economy. These actions will likely induce a response in-kind by central banks of satellite EU nations. Accommodative ECB policies have historically led to stronger currencies and tighter financial conditions in these smaller markets, requiring satellite central bankers to also follow suit. Read More

CHINA

The Chinese economy saw its slowest growth of 6.2% in 2Q 2019. Absent trade resolution, a path to recovery would require broad coordination of cyclical policy measures: 1) more fiscal spending as budgeted or via special bond financing, 2) flexible monetary policy, and 3) balanced structural policies. Stimulus may be limited by concerns over debt, inflation, and FX depreciation. Read More

LATAM

The recent political backdrop in Argentina reminds us of the potential unanticipated consequences of populism. August’s surprise election outcome led to a 14-sigma peso move. Yet, we interpret the event as localized in nature, with no broader EM contagion implications for capital markets. Read More

Market Views


ASSET VIEWS

In order to streamline our asset class views we have simplified the dot plot in the right-hand panel from five to three lines. The dots now reflect views as neutral, more attractive, or less attractive in a cross-asset portfolio. Read More

US EQUITY

Bouts of episodic volatility are likely to continue in light of geopolitical tensions and moderating global macro data. Still US equities remain attractive in our view given low interest rates and dovish central banks. We expect earnings to grow, driving the majority of returns going forward. Our 2019 year-end price target for the S&P 500 is 3100, and 3400 for 2020 year-end. Read More

INT’L EQUITY

Against a slowing economic and destabilizing geopolitical backdrop, European opportunities appear more micro than macro. Significant dispersion in company fundamentals such as EPS growth and profit margins may create opportunities for bottoms-up analysis and concentrated positioning. Read More

FIXED INCOME

More than 30% of sovereign debt is now yielding negative, and less than 15% posts yields above 2%. However negative yields do not necessarily mean negative returns. This unprecedented rate environment does not alter the ability of active investors to identify potential return opportunities – including relative value, positive carry, term structure, and regional exposures. Read More

FX

The relative strength of the US economy amid global uncertainties has supported the dollar, but we expect stabilization in other regions to shift dynamics going forward. Speculative positioning against the euro makes it particularly attractive in our view, while in Japan accelerating capital outflows and exceptionally low yields create additional headwinds for the yen. Read More

ETF: Rethink passive and active


We think smart beta ETFs are efficient investment vehicles to harness both market beta and time-tested factor betas in a cost-effective and transparent rules-based strategy, potentially leading to superior returns over time compared to a traditional cap-weighted index. We are mindful of the challenges of factor timing. We prefer to diversify across smart beta strategies to tap into a range of differentiated return sources, taking advantage of the benefits of factor diversification given their low correlations.

The fantastic four

We think these four factors are some of the most economically intuitive and commonly supported factors over the course of decades. They have proven robust in a variety of market environments and are “active” in the sense that they do more than merely deliver market beta. In our view, a cost-effective and transparent rules-based strategy can provide higher risk-adjusted returns compared to a traditional cap-weighted index.

Source: GSAM.
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