Marcus is excited to share this insight from our colleagues at Goldman Sachs Asset Management’s Strategic Advisory Solutions, highlighting some of the latest issues and trends in the financial markets. You can also read the original version of this article here.
Jobs are still plentiful, but for how long? The hot US labor market is slowing down as companies re-evaluate hiring. Some are cutting open jobs; some are hitting the pause button. But job growth right now is still twice the pre-pandemic rate. Our Global Investment Research team estimates we still have 5.6 million more open jobs than available workers - a hearty 3.6 million above the level that could help us control wage growth and reach the Fed’s inflation target.
What’s it going to cost us? After a year’s worth of negotiations, President Biden recently signed the Inflation Reduction Act (IRA) – a significant climate, health care and tax bill – into law. As with all spending bills, the question becomes how much it could slow the economy if people had to pay more in taxes. Our Research colleagues estimate that this bill’s net fiscal drag on gross domestic product (GDP) will be less than 0.1% in each of the next few years, with corporate tax increases and cost savings offsetting energy investments in the IRA.
Hey, bears! The bull may be down but not out. Our Research colleagues revised their growth predictions downward for 2023 S&P 500 earnings, due to slowing GDP growth, new corporate taxes and maybe some tightening of profit margins. So, investors may not make the returns in the stock market that made recent years so profitable. But down is not out and there are still opportunities. The S&P 500 has now regained half of what it lost between its peak and its June low. Plus history has a hopeful message: In the 12 months after past trend reversals, the S&P 500 has delivered a positive 19% return on average.
Yield signs. Fed guidance (hints on their next moves) will likely skew US Treasury yields higher. While slowing growth in the economy could keep the yield curve flat. A flat yield curve, when short-term and long-term rates are very close, tends to happen in times of transition, like now, when the Fed is increasing its short-term rate target.
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