Market data provided byFactset. Goldman Sachs Group Inc. cut its US economic growth estimates for 2023 after recently boosting its predictions for Federal Reserve interest rate hikes. We look forward to beginning a conversation to help you achieve your objectives and make the impact you desire. UBS to Explore Credit Suisse Deal in Crisis Combination, CFA Revised Exam Cuts Study Time, Stresses Practical Skills, LME Rocked by New Nickel Scandal After Finding Bags of Stones, How First Republic Bank Received a$30 Billion Lifeline, UBS, Credit Suisse Oppose Idea of Forced Tie-Up. We, too, expect to see this trend continue, as investors and strategies aim to allocate more capital to bonds with environmentally and socially friendly projects. 2023 FOX News Network, LLC. Goldman Sachs just raised its odds for a recession as turmoil in the banking system continues to unfold. Goldman sees US growing 2.4% in 2022 and 1.6% in 2023. Past performance does not guarantee future results, which may vary. Investments in fixed-income securities are subject to credit and interest rate risks. Equity markets dropped precipitously, interest rates rose at the fastest pace in decades and commodity prices gyrated in response to high inflation and geopolitical tensions. Final rule adoption is still pending, so all eyes are focused on this as we progress through 2023. Michael M. Santiago / Staff / Getty Images. Drawdown is the peak-to-trough decline during a specific recorded period of an investment security. These forecasts are estimated, based on assumptions, and are subject to significant revision and may change materially as economic and market conditions change. 2023 Goldman Sachs. The pace of rating downgrades and distressed situations in the healthcare space have begun to tick up as operating margins have been pressured and cash reserves previously bolstered by COVID-19 stimulus monies and investment market outperformance have eroded. Due to this, the primary market was muted during weeks where there was a closely watched economic data point release or a Federal Reserve monetary policy meeting. Date of First Use: January 13, 2023. Economic stimulus refers to attempts by governments or government agencies to financially kickstart growth during a difficult economic period. /. Seizing the opportunities these changes may create calls for a new approach rooted in a more holistic view of asset allocation with increased attention to risk. Insight and analysis of top stories from our award winning magazine "Bloomberg Businessweek". Goldman Sachs lowered its forecast for 2023 GDP growth to 1.2%, down from 1.5%. Goldman Sachs does not provide legal, tax or accounting advice, unless explicitly agreed between you and Goldman Sachs (generally through certain services offered only to clients of . Any mention of an investment decision is intended only to illustrate our investment approach and/or strategy, and is not indicative of the performance of our strategy as a whole. Sources: Goldman Sachs Asset Management, US Bureau of Economic Analysis. As of December 31, 2022. The Federal Reserve building in Washington. As of December 30, 2022. We spell out our one- and five-year expected returns and review our tactical tilts coming into 2023. as well as other partner offers and accept our, Photo by Thomas Koehler/Photothek via Getty Image, We interviewed the CEOs of 4 of Warren Buffett's most iconic businesses. The projection for the unemployment rate is to rise to 3.7% by year-end, up from 3.6%, and rising to 4.1% by the end of 2023, from 3.8% previously. "If the Fed is scared, you should be scared," he said in a CNBC interview on Wednesday. Price/earnings (PE) ration is a gauge of how expensive a stock is. While an adviser seeks to design a portfolio which reflects appropriate risk and return features, portfolio characteristics may deviate from those of the benchmark. Since December, when it predicted 3.8% growth, it has cut its outlook more than once.Its economists said that since April, financial conditions have tightened to a level that should drag on GDP growth by about 1 percentage point, but also bring inflation down to the Fed's 2% target. GDP growth prediction for next year lowered to 1.1% from 1.5%, A below-potential growth trajectory may be needed: Hatzius, Summers Says Fed Terminal Rate Above 5% Wouldn't Surprise. The Fed moved aggressively in 2022 to get inflation under control. The value of investments and the income derived from investments will fluctuate and can go down as well as up. How It Works, Benefits, and Risks, Macroeconomics Definition, History, and Schools of Thought, Gross Domestic Product (GDP): Formula and How to Use It. The Wall Street firm's new outlook stems from "increased near-term uncertainty," the strategists said. Finnish School Children Solve This ClimatePuzzle Every Year. Our Standards: The Thomson Reuters Trust Principles. Portfolio holdings and/or allocations shown above are as of the date indicated and may not be representative of future investments. Additionally, constant interest rate volatility and yield spikes caused by economic data releases and monetary policy actions added to issuers apprehension when deciding whether to come to the market. Looking ahead, the Fed Funds rate is expected to peak at 5% in mid-2023, with the market pricing in a possibility of rate cuts towards the end of the year. The logo for Goldman Sachs is seen on the trading floor at the New York Stock Exchange (NYSE) in New York City. Volatility is the manner in which the price of an investment moves up and down. The following questions will help us determine the right team for you. As in previous years, investors should look to maximize after-tax yields by pivoting between tax exempt and taxable securities as valuations fluctuate. Bonds and fixed income investing are subject to interest rate risk. References to indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only and do not imply that the portfolio will achieve similar results. This does not constitute an offer or solicitation with respect to the purchase or sale of any security in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. The Fed's rate hikes are in the ballpark of what's ultimately needed to cool wage and price pressures, they said. Issuers that took advantage of historically low borrowing costs to be overly acquisitive may find themselves overly stressed while those with experienced management teams and strong balance sheets should be better positioned to navigate the sectors challenges. The bank crisis shouldn't have come as a surprise to markets, given the Fed's rapid withdrawal of liquidity and policy tightening of the last year, according to Seema Shah, chief global strategist at Principal Asset Management. Lastly, 2022 was marked by significant negative returns across most fixed income asset classes, including municipals. An Outcome is Income. Goldman Sachs is predicting zero earnings growth in 2023, with stocks ending the next year essentially flat. 10-year AAA municipal yields followed a similar trajectory rising from a low of 1.05% to a high of 3.40%averaging 2.50% for the year. As of December 31, 2022. Municipal investors can earn meaningful tax-free income at current levels. As we begin the new year, we wanted to take a look at the global economic outlook for 2023 and share some insights from some of the biggest names in finance. If the Fed is ultimately successful, and the economy avoids a deep recession, we believe states and municipalities will power through on the back of those strong reserves. Goldman Sachs sees the Federal Reserve acting aggressively to tighten monetary policy through the rest of the year. "While this slowdown in growth should help lower job openings, it is also likely to raise the unemployment rate a bit, particularly since the job openings rate typically only falls when unemployment spikes in recessions," the economists said.The note, written by Joseph Briggs, predicted unemployment will rise to 3.5% at the end of 2022, and climb further to 3.7% at the end of 2023. Security selection within this space will be more critical than ever this coming year. A U-shaped recovery is a type of economic recovery that experiences a recessionary decline followed by a gradual rise back to its previous peak. The exclusion of failed or closed hedge funds may mean that each index overstates the performance of hedge funds generally. In a note released late Friday, Goldman now sees GDP. Gross domestic product is the monetary value of all finished goods and services made within a country during a specific period. Learn more in our Fixed Income 1Q 2023 Outlook: Bring On Bonds where we discuss growth, inflation, monetary and fiscal policy, and more. This is sharply lower than the 5.8 percent we anticipate for Q4 of this year. Goldman Sachs ( GS) warned on Wednesday of economic ripple effects in the aftermath of the Silicon Valley Bank ( SIVB) and Signature Bank ( SBNY) busts. As a result, we see more lower-rated credit opportunities. This site requires JavaScript to run correctly. Regional banks in the United States have been on a bumpy ride since SVB Financial Group (SIVB.O) was shuttered by regulators after a bank run last week. With the easing of There can be no assurance that the forecasts will be achieved. For example, in the green bond principles, there are four components outlined for issuers to consider Use of Proceeds, Project Selection, Management of Proceeds, and Reporting.3 As an anecdote, in Q1 and again in Q3 of this year, verified deals outnumbered self-labeled deals, validating the anecdotal growth we have observed of these types of deals.4. This material has been prepared by Goldman Sachs Asset Management and is not financial research nor a product of Goldman Sachs Global Investment Research. Source: BofA Global Research, Bloomberg. Citing the "apparent demise" of Build Back Better, Goldman. G10, or Group of Ten, is a group of eleven industrial countries which co-operate on economic matters.. 1 Federal Funds Rate target upper bound. Qg:y(%fy ]U3C:zt(bnWwtyu6m3|B 8_Yse_5UQ{uy5`oi~U9:u. Goldman Sachs Asset Management has no obligation to provide any updates or changes. Goldman Sachs on Wednesday lowered its forecast for fourth-quarter U.S. gross domestic product (GDP) growth, citing risks to the lending environment as smaller banks pull back on loans to preserve . The views expressed herein are as of December 31, 2022 and subject to change in the future. It should not be assumed that any investment decisions shown will prove to be profitable, or that any investment decisions made in the future will be profitable or will equal the performance of investments discussed herein. No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the recipient, without Goldman Sachs prior written consent. CME's FedWatch Tool on Thursday showed traders are giving about a 25% chance to no rate hike next week, and about a 75% chance of a quarter-point hike. To say 2022 was a tumultuous year is an understatement. That would mean much tighter lending standards, which could be a drag on GDP expansion already affected by tightening in recent quarters. Bank previously saw growth of 2.6% this year, 2.2% next. Over-levered is a term used to describe a company which has taken on too much debt. Gross Domestic Product for 2023 and sees the unemployment rate rising higher than previously expected. Goldman said that small- and medium-sized banks play an important role in the economy, noting that banks with less than $250 billion in assets make up about half of U.S. commercial and industrial lending, 60% of residential real estate lending, 80% of commercial real estate lending, and 45% of consumer lending. Tail risk arises when the possibility that an investment will move more than three standard deviations from the mean is greater than what is shown by a normal distribution. More importantly for the longerrun economic outlook, we expect - consumer price inflation, as measured by the personal consumption expenditures (PCE) deflator, to fall throughout the year and average 2.6 percent in the fourth quarter of 2023. Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. States enjoyed healthy reserve growth (exhibit 6), however with the economy cooling, we are seeing a revenue-expense gap developing for 2023. March 15 (Reuters) - Goldman Sachs on Wednesday lowered its forecast for fourth-quarter U.S. gross domestic product (GDP) growth, citing risks to the lending environment as smaller banks pull back on loans to preserve liquidity in the face of a banking crisis. David Kostin, the chief US equity . That has Goldman cutting its U.S. Economic expansion, shown in the GDP growth below, started in 2020 and has only recently started to decelerate (exhibit 5). Absolute supply for 2022 amounted to $385BNa notable decrease from the almost $500BN in annual supply seen during the previous two years. But as investors who lived through 2022 will appreciate, the journey is unlikely to be smooth or straightforward. The firm expects small- and medium-sized banks to pull back on lending as they aim to preserve liquidity. **This reflects labor force participation. Tax-exempt refinancings became uneconomical for some issuers as AAA muni tax-exempt yields increased by 200bps and the 300bps increase in Treasury yields severely hampered issuance of taxable municipals for the purpose of refinancing previously issued tax exempt debt. These risks should be fully evaluated before making an investment decision. Past performance does not guarantee future results, which may vary. The bank's economists forecast US GDP will expand by 2.4% this year, down from an estimate of 2.6%. Satori Fun founder reacts to FedEx warning of a global recession, telling 'The Claman Countdown' our economic situation is due in part to the Fed initially ignoring the worst inflation in 40 years. Investopedia does not include all offers available in the marketplace. This information should not be relied upon in making an investment decision. Analysts at the firm now expect year-over-year growth of 1.2% for the quarter, down 0.3 percentage points from their previous estimate. What Is Quantitative Easing (QE), and How Does It Work? We do, however, expect the majority of distressed situations to generally be one-off in naturedisproportionately impacting project finance transactions which tend to be equity light and make up a small but risky subsegment of the municipal bond market. They expect global growth to be 1.8% in . The world we live in is becoming more complex. We expect this year to be less turbulent for markets, with inflation moderating and major central banks approaching the end of their tightening cycles. Payouts to staff including senior executives were signed off by HSBC earlier in the . View Transcript. Sources: S&P Rating Changes as of December 30, 2022 - Favorable includes: Upgrades, Outlook/CreditWatch changes to Positive or to Stable, or removal of CreditWatch Unfavorable includes: Downgrades, Outlook/CreditWatch changes to Negative, or placed on CreditWatch. Goldman Sachs has cut its recommendation on exposure to European bank debt to neutral from overweight, saying a lack of clarity on Credit Suisse's CSGN future path would put pressure on the broader sector in the region.. Credit Suisse was thrown a $54 billion lifeline by the Swiss central bank on Thursday to shore up liquidity after a slump in its shares and bonds intensified fears about a . What is more interesting to reflect on is the percentage of issuance of these types of bonds, which has grown from 2% in 2018 to almost 11% by the end of 2022. The rapid unraveling of the startup lender has fueled worries of potential bank runs at peers that could leave them scrambling for funds to meet deposit withdrawal requests. The Fed implemented seventeen 25bp rate increases in 2022 catapulting the Fed Funds target rate from 0.25% to 4.50%. We look forward to beginning a conversation to help you achieve your objectives and make the impact you desire. Goldman Sachs has no obligation to provide updates or changes to these forecasts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. All investments involve risk including possible loss of principal. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. Demand from non-traditional buyers of municipal debt such as banks, insurance companies, and foreign investors will continue to be driven by relative valuations versus other fixed income asset classes. Please see additional disclosures at the end of this presentation. That has the potential to create volatility in bond marketsand that will create opportunity., First TINA, now BOBA wise choice in our opinion given the sharp rise in yields presents the most attractive income and total return potential in more than a decade. Source: Goldman Sachs Global Investment Research 1 *Extrapolated before Dec 2000 using the newspaper help-wanted index based on methodology by Regis Barnichon, San Francisco Fed. All rights reserved. High-yield, lower-rated securities involve greater price volatility and present greater credit risks than higher-rated fixed income securities. Past performance is not indicative of future results which may vary. In Section I of this report, we provide the rationale for assigning a 4555% probability to the risk of a US recession in 2023. As of December 30, 2022. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk. "We now think the rate hikes that are currently priced into financial conditions are in the ballpark of what is ultimately needed to restore balance to the labor market and cool wage and price pressures," economists at Goldman Sachs led by Jan Hatzius said in a note. We believe 2023 will be a year to maintain a neutral position and let the elevated yields purchased in 2022 work for investors in the form of carry. Lastly, investors will be watching how much of the higher education sector manages to navigate its way through enrollment declines and endowment investment losses. As we wrote in our 2022 Outlook, last year was a time for investors who had been underweight munis, short duration, and/or maintaining elevated cash levels to gradually get to a more neutral overall positioning as yields materially rose. The central bank's aim is to have just enough job growth to keep the economy running well without contributing to rising inflation. Strategists led by Goldman's chief economist, Jan Hatzius, said there's now a 35% chance of a US recession, up from the bank's previous forecast of 25%. Following the trend in Europe as well as in other fixed income markets, the municipal fixed income team expects to see verified bonds represent a growing percentage of the labeled market. Please see additional disclosures at the end of this presentation. Mutual Fund and ETF data provided byRefinitiv Lipper. Many states and local governments are heading into the 2023-24 budget season in a strong position. Any such illustration is not necessarily representative of other investment decisions. THESE MATERIALS ARE PROVIDED SOLELY ON THE BASIS THAT THEY WILL NOT CONSTITUTE INVESTMENT ADVICE AND WILL NOT FORM A PRIMARY BASIS FOR ANY PERSON'S OR PLAN'S INVESTMENT DECISIONS, AND GOLDMAN SACHS IS NOT A FIDUCIARY WITH RESPECT TO ANY PERSON OR PLAN BY REASON OF PROVIDING THE MATERIAL OR CONTENT HEREIN. Quotes displayed in real-time or delayed by at least 15 minutes. Goldman Sachs cut its US GDP growth outlook for 2022 and 2023, saying financial conditions are tighter. Defaults make up 0.03% of the ~$4TN municipal market. "A failure to pass BBB has negative growth implications," Goldman Sachs economists, led by Jan Hatzius, said in the research report. They added, however, that a sharp increase in unemployment may be avoided, "since typically the job openings rate declines more, and the unemployment rate increases less, when the job openings rate is very elevated, like it is today.". Goldman now expects a 75 basis point hike, up from 50 basis points previously and sees 50 bp hikes in November and December, with the fed funds rate peaking at 4-4.25% by the end of the year. The gap between labor demand and supply will likely narrow in the next year, now that labor supply disincentives from generous unemployment insurance packages fade out, they noted. Sources: Goldman Sachs Asset Management, US Bureau of Economic Analysis. As of December 31, 2022. . Investors are urged to consult with their financial advisors before buying or selling any securities. 55% of investors polled by J.P. Morgan in its 2023 Outlook Survey expect the Fed to be on hold through the first quarter of 2024 or beyond. The holdings and/or allocations shown may not represent all of the portfolio's investments. Interest rates rose dramatically throughout 2022 as the 10-year Treasury yield jumped from a low of 1.50% to a high of 4.25%averaging 2.95% for the year. We have been cautious investing in several sectors since the onset of the pandemic, including the higher education and health care sectors both of which have been impacted by weak revenue and increasing labor costs. Bull market is a term used to describe a market in which prices are rising or expected to rise. Silicon Valley Bank and Signature Bank marked the second and third largest bank failures in history, respectively, behind only Washington Mutual during the 2008 crisis. The Wall Street firm's new outlook stems from "increased near-term . "The latest turmoil, however, has quickly reminded investors that risk assets simply cannot escape the wrath of monetary tightening.". A great deal of variability exists with this forecasting as (1) there is debate around if and at what pace inflation returns to acceptable levels, (2) whether the U.S. enters a recession, and (3) how the Feds monetary policy will respond to economic data. Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts. You can find out more about our use, change your default settings, and withdraw your consent at any time with effect for the future by visiting Cookies Settings, which can also be found in the footer of the site. All quotes delayed a minimum of 15 minutes. Investors may experience mid-single digit returns in 2023 as we begin the year with tax-free AAA muni yields between 2.50% and 3.50% and see the potential for a stable or potentially lower interest rate environment ahead. Please see additional disclosures at the end of this presentation. (REUTERS/Andrew Kelly/File Photo / Reuters Photos). This material is provided for informational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. Dealer expectations for issuance in 2023 range between $50-60bn, compared to ~$45bn in total ESG issuance this past year. Invest in Education. The Fed has the tricky task of trying to cool red-hot inflation without sending the US economy into a slowdown. There can be no assurance that the forecasts will be achieved. Goldman Sachs has cut its recommendation on exposure to European bank debt to neutral from overweight, saying a lack of clarity on Credit Suisse's future path would put pressure on the broader sector in the region. Individual portfolio management teams for Goldman Sachs Asset Management may have views and opinions and/or make investment decisions that, in certain instances, may not always be consistent with the views and opinions expressed herein. But the gap still remains "extremely high", and it can only be narrowed if the Fed convinces companies to lower job openings. Over the past couple of years, a confluence of factorsa global pandemic, surging inflation, war in Europe, aggressive monetary tightening and a cost-of-living crisishas rocked the boat for investors like never before. If the only thing you know about sports is who wins and who loses, you are missing the highest stakes action of all. It raised its benchmark rate by 0.5% in May for the first time in 22 years, bringing it to a range of 0.75% to 1%. This tug-of-war between views on inflation and economic data may be a persevering theme throughout the upcoming year. Goldman Sachs chose to undertake the audit voluntarily, so that it could assess the initiatives' impact. as well as other partner offers and accept our, pause in the Fed's tightening campaign would ultimately negatively weigh on stocks, policymakers are pivoting for all the wrong reasons, Registration on or use of this site constitutes acceptance of our. Economists at the bank indicated the reason for the change was that they anticipate a pullback in lending by small- and medium-sized banks as they try to preserveliquidityin case they need to cover withdrawals. Visit the GSAM Muni Center where you can find our municipal bond funds and high caliber market insights. Will the US enter a recession or avoid it? If prices fluctuate dramatically over a short period of time, a market is said to be highly volatile. The value of investments and the income derived from investments will fluctuate and can go down as well as up. Environmental, Social, and Governance (ESG) strategies may take risks or eliminate exposures found in other strategies or broad market benchmarks that may cause performance to diverge from the performance of these other strategies or market benchmarks. Though nominal issuance of ESG bonds is down slightly compared to 2021, this primarily reflects the lower levels of aggregate issuance driven by the huge increase in rates in 2022. Influential people and institutions across the globe rely on Goldman Sachs to support them in all they do. Looking at 2023, Goldman foresees the euro zone growing by 2.5% and the U.S. by 2.2%. 1151 0 obj
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Let High Current Yields Carry Your Bond Portfolio. Goldman Sachs cut its outlook for economic growth this year, pointing to troubles in the banking sector. 4 Bloomberg, BofA Global Research, NIC MAP Data. As yields stay elevated, consider continuing to add exposure along the yield curve. Goldman Sachs does not provide legal, tax or accounting advice, unless explicitly agreed between you and Goldman Sachs (generally through certain services offered only to clients of Private Wealth Management). Nonetheless, our analysis shows that our two key investment themes remain valid: US Preeminence and Staying Invested. We evaluate the key arguments in favor of and against a US recession, and note that although a recession is possible, it is not inevitable. Additionally, in May the SEC announced amendments to two rules, looking to both standardize disclosure and expand naming consistency of funds with ESG characteristics. This material contains information that discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions.
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