Menu Our services in the selected location:
  • No services available for your region.
Select Location:
Select Location
    Remember my selection
    Your browser is out of date.

    Explore how we can help you

    Contact Us
    MARKET PULSE 
    |
    April 2024

    MARKET PULSE | April 2024

    Macro Views

    US Growth

    We continue to see a relatively low 15% probability of a US recession over the next 12 months and GIR has upgraded their 2024 US GDP growth forecast to an above-consensus 2.7%. The latest boost is partly due to our assessment that elevated immigration may provide a 0.3pp boost to potential GDP growth from faster labor force growth. Read More

    US Inflation

    We expect core PCE inflation to decline to 2.4% by June 2024, reflected by further rebalancing in the auto, housing rental, and labor markets. We would note that recent Fed commentary showed only modest concern about the firmer January and February inflation data, revealing seasonal effects likely boosted the numbers. Read More

    Monetary Policy

    The Fed will remain on hold at 5.25-5.50% until the first 25bp cut is delivered in June, in our view. Thereafter, we expect 25bp cuts in September and December, followed by five more cuts into 2026 to a terminal rate range of 3.25-3.50%. We believe the ECB will remain on hold at 4.00% until the first rate cut in June, after which we expect 25bp cuts at each meeting until reaching 2.25%. With that said, the timing and pace of cuts remains fluid and highly data-dependent. Read More

    Japan

    The BoJ has ended its unconventional negative interest rate policy as Japan may finally be overcoming its battle with deflation. Since April 2022, inflation has been above 2% year-over-year for a total of 23 consecutive months. A firm labor market, higher wages, and gradual policy normalization may support capital flows as other G10 economies enter their respective rate reduction cycles. Read More

    Market Views

    US Equities

    The S&P 500 returned over 10% in 1Q2024, surpassing GIR’s 2024 year-end forecast. They maintain their baseline forecast of 5200, however see four possible outcomes: 1) a catch-up, in which the index broadens out on continued disinflation (5800), 2) a catch-down, in which Magnificent 7 stocks disappoint growth expectations (4500), 3) continued exceptionalism (6000), or 4) renewed recession fears (4500). Read More

    Momentum

    A catch-up within the S&P 500 is more likely than a catch-down in the event of a momentum reversal, in our view. In prior periods of elevated concentration, the momentum factor has rallied, as has been seen this year. In the 26 historical instances in which the momentum factor then fell by –20pp or more in three months, performance for top names was mixed, while performance for laggards was always positive. Read More

    Small Caps

    We are also favorable on a small-cap catch-up for two reasons. First, small-cap valuations remain attractive in our view, with the median profitable Russell 2000 company trading at an –8% discount relative to its long-term average and a –32% discount relative to the S&P 500. Second, small caps have historically outperformed large caps at the start of monetary easing cycles. Read More

    FX

    The BoJ’s rate hike was an anticipated monetary step that had muted impacts for the yen. We believe that until return prospects outside of Japan wane, the BoJ’s early hikes will not spark repatriation from Japan-based investors. We uphold our belief that US dollar weakness hinges on cyclical outperformance abroad and continued US inflation relief. Read More

    Gold

    US rate cuts in non-recessionary environments have also historically led to higher commodity prices, with the biggest boost coming to metals. We feel that gold’s record march higher will continue. Read More

    Ahead of the Curve

    The efficacy of common macro and market signals in triggering successful fixed income trades is often inconsistent. Central bank easing and yield curve dis-inversion are two such signals which have often been used as indicators to add duration to fixed income portfolios. After a closer look historically however, we find these events to often be noise and believe investors will benefit from staying ahead of the curve and increasing duration profiles prior to their occurrence.

    POLICY RATE CUTS

    Long awaited and heavily debated are Fed rate cuts. Monetary easing’s larger effect on shorter-maturity interest rates may leave investors waiting for cuts to take place before rotating into longer-dated bonds. We see this signal as unreliable however, as core bonds have provided strong relative performance in the lead up to the past six easing cycles. In fact, a 10-Year US Treasury Note has outperformed a 2-Year Note by an average 9pp annualized between past Fed pauses and cuts.

    Source: Barclays and Goldman Sachs Asset Management.

    YIELD CURVE DIS-INVERSION

    Short-dated bonds ceasing to yield more than long-dated bonds, otherwise known as yield curve dis-inversion, may be a more obvious signal to consider adding duration. Looking at four prior periods of sustained yield curve inversion however suggests this approach may miss strong returns provided by intermediate fixed income before the normalization. In the 12 months prior to past dis-inversions, a 10-Year US Treasury Note outperformed a 2-Year Note by an average of 310bps.

    Source: Barclays and Goldman Sachs Asset Management.

    TAKING WHAT THE MARKET GIVES

    Rather than depend on the questionable efficacy of common signals in the fixed income market, we think investors would stand to benefit from recognizing when core bonds are providing the features that the asset class is known for. We believe now is one of those times. A 10-Year US Treasury Note today provides higher income, better asymmetry of returns, and a greater capacity to hedge equity market volatility than it has for the majority of the last 20 years.

    Source: Bloomberg and Goldman Sachs Asset Management.
    VIEW LESS DISCLOSURE

    “We” refers to Goldman Sachs Asset Management. Top Section Notes: Source: Barclays and Goldman Sachs Asset Management. As of March 21, 2024. Middle Section Notes: Source: Barclays and Goldman Sachs Asset Management. As of March 21, 2024. Bottom Section notes: Source: Bloomberg and Goldman Sachs Asset Management. As of March 26, 2024. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that forecasts will be achieved. Please see additional disclosures at the end of this presentation. Past performance does not guarantee future results, which may vary.

    Stay Informed and Be Ahead of the Curve

    DOWNLOAD MARKET PULSE

    Access the full PDF to use with your clients

    SUBSCRIBE TO MARKET PULSE

    Get the latest Market Pulse delivered to your inbox as soon as it publishes

    MANAGE SUBSCRIPTIONS

    Related Insights

    March 25, 2024

    Pressure Relief

    March 2024

    Monthly Market Pulse: March

    CONTACT US

    For More Information
    Broker/Dealers
    800.292.4726
    Independents/RIAs
    866.473.8637
    Retirement Services
    800.559.9778
    Client Service
    A & C Shares
    800.292.4726
    Institutional Shares
    800.621.2550