The U.S. is where investors should be, according to Goldman Sachs. The outperformance of American stocks has been a big lure for investments in this country for a while now, the firm’s strategists believe. Nothing will change on that score, so it’s wise to stay on U.S. shores, in the investment house’s view.
The firm’s 2024 investment outlook, “America Powers On,” features on the cover a finned 1960s Cadillac tooling down a Western highway, taking up both lanes.
Goldman’s U.S. market prediction is for the S&P 500 to reach 4,950 to 5,050 by the end of 2024. That would mean it would rise between 4.4% and 6.4% this year. (The index closed at 4,780 on Thursday.) In 2023, the S&P 500 surged 24.2%. To Goldman, the high valuation of the U.S. market will keep stocks’ advance more moderate this year.
In a briefing to the media, two top officials from Goldman’s Investment Strategy Group—its head, Sharmin Mossavar-Rahmani, also the CIO of wealth management, and Brett Nelson, its head of tactical asset allocation—spelled out the rationale for domestic-centric investing. They described how the U.S. is dominant economically and financially, making it the place to invest.
Since the trough of the global financial crisis in March 2009, Mossavar-Rahmani said, U.S. equities have performed far better than those from elsewhere: up 16% annualized, compared with 10% for non-U.S. developed markets, 10% for the eurozone, 8% for emerging markets and 6% for China. Another plus, she noted, was that Goldman gives just a 30% chance of a U.S. recession within 12 months. A year ago, conventional wisdom held that a downturn would hit during 2023.
Despite high price/earnings ratios, U.S. equities outperformed last year due to both good earnings and investors continuing to pile into those shares regardless of the high prices, Nelson explained.
What about the dominance of mega-cap U.S. tech stocks, eight of which account for almost 30% of the S&P 500? Nelson did not portray that as a weakness, per se. If the eight high-fliers returned to their medians, then a modest increase in the valuation of the remaining 492 stocks in the index would have a 75% chance of generating positive returns, he argued.
Further, history shows that when the Federal Reserve cuts interest rates (as many expect it will, even officials at the Fed) and the U.S. avoids a recession, the S&P 500 rises 20% after the initial rate reduction.
What about the possible impact of a presidential election? A president’s first term, referring to Joe Biden’s, usually results in a positive market move, Nelson contended. The late-2023 rally, which was broad-based, should be followed by “well-above-average equity returns,” in 2024, he argued.
In addition, there is little chance that China will develop into the economic colossus that will surpass the U.S., Mossavar-Rahmani stated, because China is economically “imbalanced,” she said, with consumer consumption too low and investment in infrastructure too high.
Her advice: “Stay in U.S. equities.”
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Tags: Brett Nelson, China, Earnings, Eurozone, Global Financial Crisis, Goldman Sachs, price/earnings ratios, recession, S&P 500, Sharmin Mossavar-Rahmani, Special Coverage: Investment Returns and Monetary Policy, U.S. stocks
