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October Market Pulse

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Marcus by Goldman Sachs is excited to share this insight from our colleagues at Goldman Sachs Asset Management’s (GSAM) 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

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Macro Matters 

Tapering parade. The Federal Reserve left its interest rate target unchanged in September, but the central bank is planning to speed up its timeline for tapering (read: cutting back) asset purchases. Goldman Sachs Global Investment Research (GIR) expects the first tapering in asset purchases to be announced by the end of the year and the first rate hike in 2023.

Across the pond, the Bank of England is monitoring inflation, raising the likelihood of an interest rate hike by year end. Similarly, GSAM also expects other central banks to tighten their monetary policy. 

Fiscal Focus 

Turbulence ahead. A host of fiscal deadlines means near-term uncertainty. GSAM believes the set of US investing opportunities remains intact, and a pending growth slowdown still leaves the economy stronger than pre-pandemic times. Corporate earnings should remain strong, and debt is still serviceable at current low rates.

GSAM believes the US macro and market landscape can weather potential near-term volatility. 

Recovery chugging along. GIR expects US GDP growth to sustain above trend at 4.5%. Domestic growth drivers such as rebounding activity, labor strength and pent-up savings should continue to support this recovery. 

Markets may shrug at higher taxes. Higher taxes are likely around the corner given the combination of high fiscal spending and historically low tax rates. Details of the tax proposals under consideration in Congress are still in flux.

While the proposed tax changes may appear significant on paper, market reactions tend to be short-lived. GSAM believes fundamentals matter more for markets. For individual investors, choosing the appropriate tax strategies to help maximize after-tax returns could become even more important in a higher tax regime. 

Global Glance

European equities. Strong growth and low rates have propelled GIR’s European EPS (earnings per share) forecast to 54% this year, followed by normalization to 7% in 2022. GSAM believes that growth sectors such as technology and companies that embrace the digital economy may be particularly well positioned. 

Japanese equities. Japanese stocks are seeing all-time highs thanks to renewed demand from investors (with further upside in the near-term in GSAM’s view). GIR expects earnings per share to grow 40% for 2021 and 8% for 2022 – all supported by profit growth, pent-up consumption and policy measures aimed at economic reopening. 

Chinese equities. A combination of regulation, policy risks and certain macroeconomic conditions may help explain recent volatility. 

Chinese markets have come under pressure this year due to tighter regulation of the tech sector and challenges in the real estate market. The property sector contributes nearly 20% to China’s GDP and represents 62% of household wealth. GIR expects a slowdown in the property sector to have a 1.4% to 4.1% drag on the country’s 2022 GDP level.

Still, any spillover effects from the property sector should be limited even if bankruptcies occur. 

The Chinese government has a strong incentive to ensure social and financial stability, which could present opportunities for active investors. 

This article is for informational purposes only and shall not constitute an offer, solicitation, or recommendation to buy or sell securities, or of an account type, securities transaction, or investment strategy. This article was prepared by and approved by Marcus by Goldman Sachs®, but is not a description of any of the products or services offered by and does not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Goldman Sachs Bank USA and Goldman Sachs & Co. LLC are not providing any financial, economic, legal, accounting, tax or other recommendation in this article and it is not a substitute for individualized professional advice. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.  Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA, Goldman Sachs & Co. LLC are or any of their affiliates, none of which are a fiduciary with respect to any person or plan by reason of providing the material or content herein. Neither Goldman Sachs Bank USA, Goldman Sachs & Co. LLC nor any of their affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.