2024 Outlook: America Powers On

US equities continued to outperform other regions in 2023, as they have done since the global financial crisis trough in March 2009. Over this period, the Wealth Management Investment Strategy Group’s (ISG) two primary investment themes of “US Preeminence” and “Stay Invested” have served their clients well, allowing them to benefit from the ninefold increase in US equities.

ISG maintains these investment themes remain valid in their recently published annual Outlook, America Powers On.

Here’s a look into the themes and other topics discussed in the report.

US preeminence

ISG’s long-standing view of US Preeminence remains intact, based on the country’s unparalleled combination of the following factors:

• Largest economy in the world, currently at 26% of global GDP
• Highest GDP per capita except for a handful of sparsely populated countries (usually natural resource-rich or tax-haven countries), each representing less than 1% of global GDP
• Largest, broadest and most liquid financial markets that support economic activity in public and private sectors
• Most favorable demographics relative to all major countries except India. Demographics are a driver of growth in GDP
• Highest labor productivity
• Strong culture of promoting and rewarding innovation and risk taking
• Persistent and diverse corporate earnings growth
• Extensive natural resources
• Safe-haven status. For example, during financial and geopolitical crises, the US dollar appreciated on 9 out of 11 occurrences, by an average of 4.8%. US Treasuries also appreciated 3.3% over the six months following the start of a crisis.
• Resilience

According to ISG, these factors are set to persist into the foreseeable future and endure even in the face of social, cultural and political fissures. In short, America powers on with no sign of others in the rearview mirror.

Staying invested

While ISG acknowledges that US equities are expensive, both on an absolute basis and relative to non-US equities, they recommend clients stay invested in US equities.

However, ISG does not expect US equities to outperform other equities by the same magnitude; nor do they expect high absolute returns from US equities.

ISG notes a number of key reasons for staying invested in US equities relative to non-US equities, including:

• Non-US equities are not as cheap as they appear.
• Valuation differentials among countries and regions have not been a good predictor of outperformance or underperformance of markets.
• US earnings per share (EPS) has grown and will continue to grow at a faster rate than that of most other markets.
• US equities have less exposure to the slowing economy in China.
• To the extent that generative artificial intelligence increases economic growth rates, the impact on the US is expected to be higher than in other countries.
• While the US faces its own domestic political tensions and uncertainties, US assets provide a safe haven as the world confronts much higher geopolitical risks in 2024 than it has over the last several decades.

More key takeaways

Geopolitical tensions

Most of the key risks to ISG’s 2024 Outlook originate from heightened geopolitical tensions and escalating wars.

Global growth stable but uneven across countries

ISG expects global growth to be around 2.9%, relative to 3% trend growth. Our colleagues estimate the US may grow in line with its trend while the Eurozone and the UK at 0.5% GDP growth would grow well below trend. ISG believes Japan could be an exception among developed economies in growing above trend. While emerging market countries together would grow at trend, there could be some dispersion among the leading emerging market countries known as BRICS (Brazil, Russia, India, China, and South Africa).

Monetary policy easing

ISG expects most major central banks in developed economies, except for Japan, will start reducing policy rates in 2024.

Lowered US recession risk but it’s still possible

ISG lowered their US recession probability to 30% over the next 12 months. This is due to great uncertainty persisting about the still-inverted yield curves and lagged impact of past monetary tightening moves.

Read more of Goldman Sachs Wealth Management Investment Strategy Group’s 2024 outlook here.