10 for 2024 Special Edition Market Pulse

Market

MACRO & MARKET VIEWS

Growth

We continue to see limited recession risk in the coming year and expect several tailwinds to global growth, including strong real household income growth, a smaller drag from monetary and fiscal tightening, a recovery in manufacturing activity, and an increased willingness of central banks to deliver insurance cuts if growth slows.

Inflation

Inflation progress is in store for 2024 as labor markets rebalance and goods, services, and shelter price categories normalize further. In Europe, despite elevated wage growth, weakening consumer demand may reduce cost pass-through and therefore ease services price pressures. With that said, higher energy prices remain a key risk.

Monetary Policy

Central banks will likely take a cautious approach as attention shifts from inflation to economic growth risk. Our colleagues in GIR expect the ECB to start cutting interest rates in 2Q2024, but possibly sooner should activity deteriorate. In contrast, stronger growth in the US may warrant a policy pause until 4Q2024. In Japan, we see scope for an exit from negative interest rates in 1H2024.

Elections

2024 will feature 40 national elections, with more than 40% of the world’s population and global GDP participating. This political landscape may introduce a fresh element of instability into a world already grappling with heightened geopolitical uncertainty

DM Equities

As macro sentiment has improved this year, a soft landing appears to have been reflected in equity prices across developed markets. A bottom-up, micro focus seems appropriate as higher-for-longer rates may expose vulnerable companies across various sectors, capitalizations, and styles. Japan is unique in that the BoJ may begin hiking in 2024, though we see this shift to macro normalcy as a tailwind for Japanese equities.

EM Equities

Two catalysts which may aid performance in 2024 are 1) policy easing by EM central banks and 2) China’s ongoing recovery. China’s recovery has been lackluster, but a focus by the PBoC to revive economic growth may boost consumption. Additionally, supply chain diversification may create opportunities in other parts of Asia and LatAm.

Rates

We view sovereign bonds as attractive, in part due to the recent rise in real yields. We expect government bonds to provide strong total returns next year and favor extending duration as longer-dated fixed income has historically outperformed cash during central bank pauses.

Credit

The credit outlook is relatively stable, in our view. A healthy private sector has supported issuer quality, while declining cash yields may increase the relative attractiveness of corporate credit. We find IG credit attractive and prefer up-in-quality positioning in high yield as we move past peak credit quality and financing costs increase.

Currencies

The US dollar has remained highly valued. While global economies entering a better balance may weigh on the dollar’s valuation over time, stronger growth and higher yields in the US may raise the hurdle for a contending currency to emerge in the near-term.

Commodities

Barring any geopolitical catalysts, we expect the price of oil to remain rangebound throughout 2024. Strong demand on receding global recession fears and structural constraint from OPEC+ may offset weak activity data in China and higher supply in the US.

Ms. Perception

The state of the global economy is dependent on the lens in which one views it through, with bulls and bears alike pointing to separate sides of the same coin in support of their respective positions. Through a balanced assessment of these mixed signals, we expect at-trend growth in 2024. With that said, this relative optimism may be well-reflected in some markets, highlighting the importance of enhanced risk awareness and portfolio balance as economies find their way to a state of normalcy.

GROWTH CONSUMER EQUITIES FIXED INCOME

A HIGHLY ANTICIPATED NON-EVENT

In late 2022, several forecasters considered a recession a foregone conclusion. Today, the consensus probability of a US recession in the next twelve months is roughly 50%, versus GIR’s probability of just 15%¹.

LEI DOWN

The Conference Board Leading Economic Index (LEI) has now declined for 19 consecutive months for the third time in history. The last two times that such a streak occurred, the US economy had already been in a recession for at least 11 months².

LABOR OF LOVE

The US unemployment rate has been below 4.0% for 21 straight months, the longest streak in 50+ years and third longest streak ever³.

Source: Goldman Sachs Asset Management. As of November 2023. ¹Wall Street Journal, ²Conference Board, ³FRED, ⁴Digital360Commerce, ⁵LendingTree, ⁶Washington Post, ^7,8,9,10Bloomberg, ¹¹FRED. “We” refers to Goldman Sachs Asset Management. The Macro and Market Views expressed may differ from those of GIR and other divisions of Goldman Sachs and its affiliates. See page 4 for additional disclosures. Past performance does not guarantee future results, which may vary.

SHOPPING SPREE

US consumers spent $12.7bn and $9.8bn online on Amazon Prime Day and Black Friday, respectively, both all-time highs⁴.

EXTRA CREDIT

Credit card spending has also increased measurably. Outstanding US credit card balances total $1.08tn, the highest level on record. Since 4Q2021 alone, credit card balances have increased by $223bn⁵.

MISS AMERICANA

Taylor Swift’s Eras Tour has been the most lucrative concert run in American history. Estimates indicate that Swifties have spent nearly $6bn on tickets, travel, hotels, food, and outfits, higher than the annual GDP of 46 countries⁶.

WAITING GAME

AI tailwinds have not been enough to help the S&P 500 surpass its January 2022 high. The index is currently in its fifth longest streak since 1950 with no ATH⁷.

JUST CONCENTRATE

The S&P 500 is more concentrated now than it ever has been. The top ten companies in the S&P 500 by market cap make up ~33% of the index, versus 25% prior to the dot-com bubble and 20% on average over the past 35 years⁸.

SOMETHING FOR EVERYONE

Heading into 2023, the range of strategists’ highest and lowest S&P 500 year-end price targets was ~33.0%, its widest since 2009. Today, the same range for year-end 2024 is only 6.6%⁹.

INTERESTING

The weighted average interest rate for S&P 500 nonfinancial firms is the lowest it has been since the 1960s and is projected to be below 4% through year-end 2024¹⁰.

UNYIELDING INVERSION

The spread between the 10-Year and 3-Month US Treasury yields bottomed at –189 bps in June 2023, its deepest inversion on record. Additionally, at 250 trading days, this is the longest streak with a negative 10y3m spread on record¹¹.

FOURTH TIME’S A CHARM

The 10-Year US Treasury note is on pace to finish with negative total returns for the third-consecutive year, an unprecedented streak².