Market Pulse – May 2023

We are excited to share these insights 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.

If you’re wondering where the economy and markets may be heading these days, here are some things to know:

The Fed hikes once more, but are they done? At their May meeting, the Fed announced their 10th straight rate hike. This 0.25% rate hike brought the Fed funds target rate up to 5.00-5.25%. Our colleagues in Global Investment Research (GIR) are now projecting a hiking pause in June and expect the Fed to hold rates steady for the rest of the year.

Summer squalls. The US Treasury said it may run out of cash by early June, although the deadline could be pushed to late July if tax receipts come in strong. In either case, our GS colleagues don’t expect the US to default on its debt. The closer we get to the deadline, the more likely we are to see a short-term debt ceiling increase.

Is AI after your job? In the view of our colleagues in Goldman Sachs Asset Management, roughly two-thirds of US jobs could be affected to some degree by Artificial Intelligence (AI) automation. Large impacts could be felt in the administrative and legal fields, with low impacts to construction and maintenance.

However, it’s good to note the creation of new jobs has historically offset automation-related job losses. New tech roles have driven 85% of employment growth over the last 80 years.

A narrow stock market rally. US stock performance looks strong in 2023, but it turns out just seven companies drove nearly 90% of the S&P 500’s 7.5% return in the first quarter. The narrowness of this rally may undermine the sustainability of returns so far. GS colleagues believe further broad-based gains in the market will be limited this year.

Don’t write the US dollar off yet. There has been public concern recently that the US dollar may be in danger of losing its important global role. But our colleagues do not expect a challenger such as the Chinese yuan to replace the US dollar as the world’s reserve currency. For one thing, China’s current account surplus incentivizes that limits be placed on yuan appreciation while other countries’ foreign exchange pegs require adequate dollar reserves be held.