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September 2020

MARKET PULSE | September 2020

Macro Views


An improving vaccine outlook has bolstered the optimistic case for global economic recovery. The benefits may be particularly large in the US, where the likely timeline for inoculation is faster, the share of activity in high-risk sectors greater, and virus control worse. We expect a vaccine will be approved in the US by year-end 2020 and domestically distributed by Q2 2021. Read More


The global recovery has been sustained by the combination of better virus control and substantial monetary and fiscal policy support. Setbacks on any of these fronts would detract from continued improvement, in which we expect 2021 GDP growth of 6.0% in the US and 7.0% globally. Read More


The US has regained nearly half of the 22 million jobs lost since February, though the pace of improvement has slowed. Still, this labor market recovery may prove faster than usual due to: 1) the high share of temporary layoffs (~80% through August), 2) the healthy labor market pre-pandemic, and 3) the potential for large-scale job creation in new industries post- pandemic. We expect the U3 unemployment rate to fall to 7.0% by YE 2020 and 5.6% in 2021 following a vaccine with a more gradual recovery thereafter. Read More

Fiscal Policy

Congress may face a few budgetary decisions in September, including a spending agreement for the next fiscal year and a phase 4 stimulus package. On the former, we expect a continuing resolution and the potential for a number of smaller funding arrangements. For the latter, we expect another $1 trillion, pushing total fiscal stimulus to 17.5% of US GDP in 2020, though risks of both a no-deal scenario and a larger package have grown. Meanwhile in Europe, we expect the €750 billion Recovery Fund to be ratified by YE 2020 and operational in 2021, supporting the Euro area recovery. Read More

Market Views

US Equity

The historical success rate of treatments in phase 3 clinical trials makes the likelihood of having a COVID-19 vaccine by 2020 increasingly favorable. We think this should help drive the S&P 500 Index to our year-end target of 3600. We expect bond yields and equity risk premium may be less supportive going forward, but a higher 2021 EPS estimate of $170 (revised +$5) and further valuation expansion (P/E multiple of 21x) should help generate a positive equity return through year-end. Read More


Companies suffering from unsustainable capital structures pre-COVID have disproportionately seen higher solvency risks, despite the Federal Reserve’s liquidity injection. The result has been much in-line with past recessionary default patterns, which have historically peaked at 11-14%. Given the stability in the current default pace, we think the worst has passed and have lowered our default rate forecast from 13% to 10.5 % for full-year 2020. Read More


The re-pricing of inflation expectations has led real rates significantly below zero and with US dollar debasement still a concern, gold demand has climbed. We think this rally can be sustained to our year-end target of $2300 per troy oz., particularly given more near-term economic, political, and inflation uncertainties. Even still, the hedging power of gold may be limited. Read More


Amid US dollar weakness versus G10 peers, EM FX has been challenged. A relatively complicated fiscal and growth backdrop combined with already stretched investor positioning may continue to hurt EM currencies, unless a faster global growth recovery, improved trade dynamics, or better viral control is possible. For now, we maintain our preference for USD over EM currencies. Read More

Politics By Numbers

Investor attention has shifted toward November and the US election, and options markets are pointing to a volatile fall. With the White House and the Senate in play, the political landscape may look entirely different over the next four years than the last four. However, in terms of market implications, history suggests limited significance in the relationship between the party in power and equity returns. Politics are one of many market-moving factors. We believe investors should build portfolios to endure any administration or economic situation.

Six Potential Outcomes

In the limited sample size of US electoral history, certain partisan outcomes are frequently viewed as more favorable for investors than others. For example, instances of a divided Congress under either presidential administration since World War II have delivered a 13.4% median annual return historically. The market may appreciate America’s system of checks and balances.

Source: Bloomberg and GSAM.

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