Half Year Review.
$Goldman Sachs(GS)$ has just released its 2024 mid-year outlook.
The publication called Cutting Through the Complexity, is published by Goldman Sachs asset management division (GSAM)
It offers insights for any investors involved during the rest of 2024 and considers the evolving economic landscape:
Characterized by a slower path to interest rate normalization.
On-going geopolitical tensions.
Crucial election cycle, that seldom gets coverage.
GSAM emphasizes embracing these “new realities” and outlines key considerations for investors across various asset classes.
Macroeconomy: Longer Road to Normal
Initially, US central bank was expected to raise interest rates aggressively to combat escalating inflation.
With inflation largely under management, expectations of the Fed further raising interest rates have waned.
Instead, investors and traders are trying hard to pin-point an expected date when the Fed would actually reduce interest rate.
With that, GSAM believes this extended normalization timeline necessitates (a) active and (b) dynamic investment strategies, that could include:
Allocation of fixed income in one;s portfolio to stability.
Venture beyond mega-cap stocks and exploring private markets, that offers lucrative opportunities.
Geopolitics and Elections: Two Wild Cards
Geopolitical instability and upcoming US elections introduce a layer of complexity for investors.
GSAM recommends (a) balanced allocations and (b) hedging strategies to bolster portfolio resilience.
During turbulent market periods, hedge funds and alternative investments can serve as valuable tools.
Focusing on long-term trends like (i) supply chain security, (ii) resource allocation, and (v) national defense (eg. $Lockheed Martin(LMT)$ can also yield strategic advantages.
Tailwinds and Headwinds: Megatrend Investing
GSAM maintains its focus on key structural forces shaping the global economy, including :
Decarbonization.
Digitization.
Deglobalization.
Geopolitical destabilization.
Demographic shifts.
These megatrends transcend short-term economic cycles and election outcomes, presenting challenges and opportunities for investors.
Equity Markets: New Opportunity
Public equities have witnessed strong performance from the “Magnificent 7” a group of dominant mega-cap companies.
However, GSAM identifies a new wave of beneficiaries emerging within the Artificial Intelligence (AI) space.
These companies leverage data to enhance AI capabilities, potentially complementing the existing leaders.
Careful security selection and active management of AI investments, including scrutinizing profitability, are becoming important.
Rise of US Small Caps
After a period of underperformance, GSAM anticipates a resurgence in US small caps.
Factors contributing to GSAM’s bullish perspective:
Attractive valuations.
Improving US economic outlook.
Prospect of interest rate cuts later in 2024.
NOTE: Historically, small caps have benefited from policy easing cycles and offer diversification away from the S&P 500 concentration risk.
Opportunities Beyond US Borders.
Europe’s improving economic situation, combined with favorable corporate earnings and valuations, make European equities an attractive proposition.
Similarly, Japan’s ongoing structural reforms and shift towards an inflationary environment are expected to bolster its equity market.
GSAM highlights small caps in both regions as potential beneficiaries of these trends, particularly with anticipated rate reductions on the horizon.
Commodities: Hedge Against Uncertainty
Investors often seek refuge in commodities when geopolitical tensions rise because they have historically exhibited hedging properties.
Oil’s value as a hedge against supply disruptions is a prime example.
GSAM emphasizes proactive portfolio management in the face of heightened geopolitical risks, advocating for a diversified approach across asset classes and potentially incorporating hedging strategies.
Navigating the Political Landscape
The first half of 2024 witnessed a flurry of political activity in emerging markets (EMs) and developed markets alike.
GSAM analyzes the potential implications of these elections for various regions and asset classes.
Upcoming US Presidential election in November 2024, is a key focus, with potential policy shifts impacting global growth and asset markets.
Useful advice: GSAM advises against attempting to time markets based on election outcomes but rather to consider the broader economic landscape.
Key Takeaway
Goldman’s mid-year outlook lays out an investor framework for understanding what to consider when navigating the shifting investment landscape in 2024.
By pointing to the extended path to interest rate normalization, geopolitical uncertainties, and upcoming elections, GSAM offers actionable insights for investors seeking to capitalize on opportunities across various asset classes.
From core fixed income and AI-driven equities to strategic allocations in small caps and commodities, understanding the outlook should be helpful during the second half.
My viewpoints: (mine only)
This mid length post has covered so much grounds that it took me 3 readings to get around all the pointers shared.
Here’s my take after digestions:
There is definitely “beauty” in the US stock market. When it comes to stocks of a certain “genre” eg. Artificial Intelligence - there is definitely options available to suit different investors.
“Yes” maybe some of the “good” stocks do not offer 100x or 200x stock prices spike but they do offer good returns (better than the paltry fixed deposits interest rates of 3.2% per annum, that’s for sure).
It is unfortunate that Tiger Brokers do not have access to Japan and Europe exchanges because it would have been “wonderful” to be able to buy into some of the blue-chips there.
In my humble opinion, both HK and CN stocks will be in languid status for a long time to come.
Sure, there will be sporadic spikes here & there for some of the stocks but no biggie
There is simply no Western monies flowing in to bolster the market. Even $Berkshire Hathaway(BRK.B)$ is selling its stakes in BYD, over time.
As for small-cap stocks on the Russell index, some are pretty expensive already. Example : $MicroStrategy(MSTR)$ (see below)
From a modestly priced $141.57 a share in 30 Dec 2022 (few weeks after ChatGPT revealed), it has rocketed to $1,611.28 per share as of 15 Jul 2024. It is insanely “overpriced” even though its RSI (62) isn’t saying so ?
My verdict for Russell Index stocks being value-for-money is still out there, to be confirmed.
Of late, I am exploring the possibility of including funds or ETFs in my portfolio as I seek to rebalance it.
GSAM has mentioned about fixed income products, perhaps it is timely to add to $Eaton Vance Tax-Managed Global Diversified Equity Income Fund(EXG)$ ?
As for artificial intelligence (AI), I feel that the focus will shift from infrastructure setup to applications.
Meaning, it is US stocks (companies) that are able to make use of AI - (a) in the company, (b) for the customers - with the ability to harnass AI benefits, that will eventually come into focus.
Lastly, I am of the belief that US market will rebalance itself after the November presidential election.
Might be by end Dec or early Q1 2025, after the next incoming President sworn in.
And US National Debt will chart new highs - toppling current almost $35 trillion. (see below) - something’s got to give !
With the imminent interest cut slated for a September 2024 first cut, is it time to include Bonds or Bonds ETF in one’s portfolio as well ? Something that I am mulling over.
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Comments
A mixed day on wall street as the Dow hits all times highs up almost 300 points and Sn ps and nas close off there lows.
They best look after their own stocks first
Any big news today? It’s horrible
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