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.
ISG’s long-standing view of US Preeminence remains intact, based on the country’s unparalleled combination of the following factors:
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.
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:
Most of the key risks to ISG’s 2024 Outlook originate from heightened geopolitical tensions and escalating wars.
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).
ISG expects most major central banks in developed economies, except for Japan, will start reducing policy rates in 2024.
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.
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