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    MARKET PULSE 
    |
    May 2024

    MARKET PULSE | May 2024

    Macro Views

    US Inflation

    After falling to a 1.9% average monthly annualized pace in 2023H2, core PCE inflation has re accelerated to a 4.0% pace in 2024Q1. Categories that have driven firm price growth include consumer electronics, financial services, and healthcare services. Looking ahead, we believe slowdowns in these same categories will lower the pace of monthly core PCE to 0.18% on average for the remainder of the year. Read More

    US Growth

    US Real GDP rose 1.6% annualized in the first quarter, substantially below our expectations, driven by variable categories such as inventories and foreign trade. We continue to expect firm real GDP growth of 2.9% YoY in 2024. Meanwhile, an economic recovery in the Euro area may come from 1) falling inflation, 2) labor market strength, 3) easing financial conditions, and 4) increased corporate investment. Read More

    Demographics

    The state of US demographics is challenged by falling fertility rates amidst an aging population but supported by elevated immigration. Contrarily, EM economies have a rosier outlook, in our view. In India, a higher number of workers coupled with an uptick in the prime age participation rate underscores our favorable growth outlook. Read More

    Politics

    The US presidential election has garnered significant attention, but equally important races in the Senate and House will take place this year. The Senate playing field narrowly favors Republicans while the House remains a toss up according to prediction markets. Razor thin margins in each chamber of Congress reinforce the difficulty of positioning portfolios in anticipation of election results, in our view. Read More

    Market Views

    Earnings

    Earnings through April have been encouraging, with roughly two-thirds of S&P 500 companies beating consensus EPS estimates by an average of 9%. We believe that earnings growth and micro factors are ultimately the key drivers of equity prices despite heightened macro uncertainty, evidenced by many investors assigning large valuation premiums to companies with quality attributes and strong balance sheets. Read More

    US Equities

    The Magnificent Seven stocks epitomize these quality attributes, and we see the S&P 500 potentially ending 2024 at 6000 if their earnings growth continues to surpass high expectations. More likely in our view is that index laggards either “catch up,” should a steady trend of disinflation resume, or today’s winners “catch down” if Magnificent Seven sales and earnings growth estimates prove too optimistic. Read More

    Rates

    We don’t believe the current level of US rates is an insurmountable obstacle for US equities, though the velocity of interest rate increases has been a challenge. Since 2006, the S&P 500 has fallen by ~4%, on average, when real yields rose by more than two standard deviations in one month, as has roughly been experienced since mid March with the 10 year US Treasury yield rising by 40bps. Read More

    Oil

    As oil prices remain volatile, we believe commodity exposed sectors currently serve a useful role in investor portfolios, particularly as hedges against geopolitical and inflation risks. Limited upside to oil prices from current levels suggests limited upside for Energy stocks in the near term, but long term prospects for the Energy sector remain attractive due to the combination of a valuation discount and structural tailwinds, including rising transportation needs in EM economies. Read More

    Get to the Bottom Line

    What began as a smooth uphill ride for US large-cap equities in 2024 has progressed into a less certain investment backdrop, characterized by high S&P 500 dispersion and increasing volatility. With potentially little further index upside, we believe it is an ideal time to reevaluate core equity exposures. Persistent tax loss harvesting is an effective tool investors can use to maximize bottom line returns and as demonstrated this year, opportunities to do so remain robust even in constructive return environments.

    REACHING YEAR END LEVELS AHEAD OF SCHEDULE

    S&P 500 price targets should be taken with a grain of salt, but they do offer a useful gauge of investor sentiment, in our view. A continuation of the risk on environment witnessed in 2023 has led to the index trading above the average of 21 strategist year end price targets just four months into 2024. While a range of outcomes still exists, this has called into question how much further the index may run this calendar year, challenging the deployment of dormant capital investors have ear-marked for core equities.

    Source: Bloomberg and Goldman Sachs Asset Management.

    ELEVATED DISPERSION, RISING VOLATILITY

    Constructive index returns may often mask individual stock movements under the surface. Dispersion among index constituents was high prior to a string of firm inflation prints and has since risen further as revised expectations of monetary easing have driven a pickup in volatility. Stock dispersion is now in its top decile, serving to clearly distinguish winners that have powered the market higher from losers who have not contributed, or may be trading at a loss.

    Source: Bloomberg and Goldman Sachs Asset Management.

    AMPLE OPPORTUNITY FOR LOSS HARVESTING

    Indeed, a closer look reveals that 37% of S&P 500 stocks are currently trading at a loss, with 74 companies down by 10% or more to start the year. Disperse markets offer better opportunity for alpha generation not only via active security selection, but also through consistent tax loss harvesting. We believe investors can get more from their core by maintaining passive market exposures that seek to maximize the bottom line with the help of index laggards.

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

    “We” refers to Goldman Sachs Asset Management. Top Section Notes: Source: Bloomberg and Goldman Sachs Asset Management. As of April 24, 2024. Middle Section Notes: Source: Bloomberg and Goldman Sachs Asset Management. As of April 19, 2024. Bottom Section notes: Source: Bloomberg and Goldman Sachs Asset Management. As of April 24, 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. Targets are subject to change and are current as of the date of this presentation. Targets are objectives and do not provide any assurance as to future results. Please see additional disclosures at the end of this presentation. Past performance does not guarantee future results, which may vary.

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