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Goldman Sachs Asset Management Statement on the Russia-Ukraine War. Read it here .

   
MARKET PULSE 
|
Special Edition: 10 for 2022

MARKET PULSE | Special Edition: 10 for 2022

Market


Economic Growth

Although the fastest pace of the recovery lies behind us, global GDP is likely to grow ~4.5% in 2022, more than 1pp above potential. We expect the first half to be stronger, benefitting from improving virus conditions, economic re-opening, pent-up consumption, and inventory rebuilding. While most economies will remain above-trend in 2022, China and Brazil will be slower due to country-specific factors.

Inflation

We remain confident that both headline and core inflation will ease meaningfully in 2022, though price pressures are unlikely to subside quickly. Nascent signs of logistical relief are already visible, even as more persistent shelter, wage, and commodities pressures should be sufficient to sustain higher trend levels and elicit policy responses.

Monetary Policy

Following two years of largely synchronized accommodation, developed market (DM) central banks are beginning to de-link, deploying regionally tailored tightening. By mid-2022, we expect the Federal Reserve to begin rate hikes, while New Zealand, Canada, and the UK will have already begun. In contrast, we expect the RBA and ECB to remain on hold until 4Q23 and 3Q24, respectively.

Geopolitics

Election-induced uncertainty may arise as presidential elections in France and Brazil may lead to policy changes, while midterms in the US may lead to policy roadblocks. Historically in the US, the opposition party has made significant midterm gains, which would likely limit any major objectives for the second half of the Biden administration.

DM Equity

We are likely to see markets move higher in 2022, supported by negative real interest rates, a high equity risk premium, and flows seeking positive real returns. In the longer term, we are expecting a flatter market, with lower aggregate returns, a wider range of volatility, and less regional bifurcation. Non-US markets are poised to narrow the differentials in earnings and returns.

EM Equity

The improving global macro backdrop should support investor flows into the under-owned EM complex. We expect highly disparate regional returns, reflecting China macro, COVID-19 medical, and commodity market sensitivities. Selectivity will continue to be key.

Rates

We expect returns from duration to be negative in many regions as sovereign yields should be driven higher by continued progress towards tightening resource slack and higher-for-longer inflation.

Credit

Valuation constraints and incrementally weaker drivers of risk appetite should result in modest spread widening, lower returns, and higher dispersion across credit markets. While the scope for compression is limited, we believe carry strategies remain fundamentally intact.

Currency

The US dollar appears vulnerable to high valuation, competitive overseas returns, new pressures on its global role, and cyclical sentiment. We expect more divergent FX trends to emerge in 2022, reflecting sensitivities to central bank de-linking, economic re-opening, and commodity pricing.

Commodities

Tightness in commodity markets is structural, based on years of under-investment. Unlike supply bottlenecks elsewhere, commodity capex problems will not be easily resolved and may be amplified by longer-term environmental and social policy objectives.

Source: Goldman Sachs Global Investment Research and Goldman Sachs Asset Management as of November 2021. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Goldman Sachs does not provide accounting, tax or legal advice. Please see additional disclosures at the end of this presentation. Past performance does not guarantee future results, which may vary.

 

Hindsight is 2021


In 2021, the transition began from a vaccine-shaped and policy-fueled recovery to a more fundamentally-driven expansion. Amid this backdrop there were packed ports, meme mania, and near-record S&P 500 new records. Many of the macro and market events may be hard to believe, or easily forgotten, in the stream of headlines. As we look ahead to 2022—and our expectations for a supportive macro backdrop for capital markets—we think the lessons from 2021 deserve a review.

Q1 Source: Bloomberg and Goldman Sachs Asset Management. As of November 30, 2021. “YTD” refers to year to date. Q2 Source: Goldman Sachs Global Investment Research and Goldman Sachs Asset Management. As of November 30, 2021. “G20” refers to the Group of 20, an intergovernmental forum comprising 19 countries and the European Union. Q3 Source: Our World in Data. As of December 1, 2020. Q4 Source: Bloomberg and Goldman Sachs Asset Management. As of November 30, 2021. Q5 Source: Goldman Sachs Asset Management. Definition of “diamond hands” is as of November 30, 2021. “Average holding period of shares” is as of August 3, 2020. Q6 Source: Bloomberg and Goldman Sachs Asset Management. As of November 30, 2021. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation. Past performance does not guarantee future results, which may vary.

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