10 charts we are watching_ GOAL_ From rates to growth - Neutral 3m and looking to re-risk (PRESENTATION)(1)pdf
10 charts we are watching_ GOAL_ From rates to growth - Neutral 3m and looking to re-risk (PRESENTATION)(1)pdf
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  1. GOAL: Asset AllocationFrom rates to growth -Neutral 3m and looking to re-riskSeptember 2024Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. This report is intended for distribution to GS institutional clients only. This report is intended for distribution to GS institutional clients onlyChristian Mueller-Glissmann, CFAGlobal StrategistGoldman Sachs International44-20-7774-1714christian.mueller-glissmann@gs.comAndrea FerrarioGlobal StrategistGoldman Sachs International44-20 7552-4353andrea.ferrario@gs.com
  2. Global Investment Research2Asset ClassWeight*Asset ClassWeight*EquitiesNEquitiesOWMSCI Asia Pac ex Japan→MSCI Asia Pac ex Japan→STOXX Europe 600→STOXX Europe 600→S&P 500→S&P 500→TOPIX→TOPIX→CashNCommoditiesOWCommoditiesNCashN10 yr. Gov. BondsN10 yr. Gov. BondsNUK↑UK↑Germany↑Germany↑US→6US→Japan↓Japan↓CreditNCreditUWEUR IG→EMBI→USD HY→USD HY→EMBI→USD IG→EUR HY→EUR IG→USD IG→EUR HY→* Arrows denote preferences within asset classes.3-Month Horizon12-Month HorizonNeutral for 3m, mildly pro-risk for 12mSource: Goldman Sachs Global Investment Research
  3. Global Investment Research3Resilient global growth and falling inflationReal GDP growthCurrent Activity Indicator (CAI)Headline InflationFinancial Condition Indices (FCI)Source: Bloomberg, Goldman Sachs Global Investment Research*Bloomberg countryand GS-weighted aggregate consensus-6-3036912131415161718192021222324Euro AreaUSEMWorld-44979899100101102103104131415161718192021222324Euro AreaUSEMWorld2023GSGSCons.*GSCons.*USA2.52.72.52.31.7Japan1.7-0.10.01.21.2Euro area0.50.70.71.11.3UK0.11.11.11.51.4China5.24.74.84.34.5India7.76.77.86.46.9Brazil2.93.02.22.12.0Russia3.63.53.31.21.6Advanced Economies1.61.71.61.81.6Emerging Markets4.34.03.93.93.9World2.72.72.62.72.6% yoy2024E2025E% yoy20232024E2025E2026EUSA2.62.32.02.0Japan3.32.52.11.6Euro area5.42.42.12.0UK7.32.52.12.0China0.20.41.51.5India5.74.54.24.5Brazil4.64.34.03.6Russia5.98.17.04.2Advanced Economies3.92.42.02.0Emerging Markets4.94.43.83.2World4.33.22.82.5
  4. Global Investment Research4Our business cycle indicators point to a continued, stable ‘early’ late-cycle positionSource: Haver Analytics, Bloomberg, Datastream, Goldman Sachs Global Investment ResearchGrowth, inflation and policy can disconnect along the business cycleAverage expanding z-score of macro and market variables across growth, inflation, and policy-2.5-2.0-1.5-1.0-0.50.00.51.01.52.02.53.03.550556065707580859095000510152025US recessionGrowth scoreInflation scorePolicy scoreMorelate cycle,higher inflation &tighter policy
  5. Global Investment Research5Cross-asset sentiment and positioning has turned less bullish since the summerSource: HaverAnalytics, EPFR, Datastream, Goldman Sachs Global Investment ResearchAverage percentile of sentiment indicatorsCross-asset positioning and sentiment indicatorsPercentile of sentiment indicators since 20074446485052545658600%10%20%30%40%50%60%70%80%90%070809101112131415161718192021222324Average PercentileGlobal PMI (RHS)13579111315170%20%40%60%80%100%Safe Bonds Flows (12m)Safe Bonds Flows (3m)JPY & Gold CFTC future pos.GS RAI Momentum (GSRAIM)GS RAI (GSRAII)Equity Risk Parity AllocationVIXInv. Intelligence Bull v. Bear (US)AAII Bull v. Bear (US)US Call/Put Volume RatioCTA Beta to Equity (3m)Global Equity Flow (12m)Risky Bonds Flows (12m)Global Equity Flow (3m)US Equity CFTC future pos.Risky Bonds Flows (3m)Average-1mCurrent-3mRISK-OFFRISK-ON
  6. Global Investment Research6Equity drawdown risk picked up into the summer but remains lowSource: Haver Analytics, Datastream, Goldman Sachs Global Investment ResearchEquity drawdown risk has picked up in the past few months but remains relatively lowImplied probability of S&P 500 drawdown based on multi-variate model (Orange/ light grey shading = S&P 500 subsequent drawdown >20%/>10%. Dashed line = unconditional probability)0%10%20%30%40%50%60%70%80%90%100%505560657075808590950005101520Prob. of 12m drawdown > -20% (R2: 19.6% AUC: 80%)Prob. of 3m drawdown > -10% (R2: 18.5% AUC: 78%)
  7. Global Investment Research7Weak growth, elevated valuation and policy increase risk, falling inflation supportiveSource: Haver Analytics, Datastream, Goldman Sachs Global Investment ResearchWeaker growth momentum, elevated valuations and tight policy drive higher risk of large drawdowns in the next 12 months, while negative inflation momentum and the positive trend reduce itImplied probability of a 12m max drawdown > -20% ranked by univariate regression performance (AUC)0%5%10%15%20%25%30%35%40%45%50%55%60%65%70%Current logit-implied probability (RHS)Regression performance (AUC)Unconditional (RHS)
  8. Global Investment Research8Equity and credit valuations have fallenSource: I/B/E/S, Datastream, Goldman Sachs Global Investment ResearchValuations have fallen for equities and credit bonds, while bonds ralliedAverage valuation percentile since 1990. Equity: NTM P/E of S&P 500, MSCI Europe, MSCI EM; Credit: spread of US HY & IG, EUR HY & IG, EMBI. Bond: 10y yield of US, Germany, Japan0%10%20%30%40%50%60%70%80%90%100%909294969800020406081012141618202224EquityCreditBondValuationscheaper71%57%64%
  9. Global Investment Research9Equity valuation de-rating is not large enough to improve asymmetrySource: Bloomberg, Goldman Sachs Global Investment ResearchDuring equity drawdowns, valuations usually de-rateS&P 500 12-month forward P/E; Orange shading = S&P 500 drawdown >10%.Large valuation de-ratings create positive asymmetryAverage subsequent S&P 500 returns and hit ratios after de-rating of 12-month forward P/E (data since 1990)-45%-40%-35%-30%-25%-20%-15%-10%-5%0%7679828588919497000306091215182124Valuation de-rating since last 12m peakEPS reset since last 12m peakP/E de-ratingTimemore than...spent1 month3 months6 months12 months-5%54%0.8%1.9%3.6%7.6%-10%30%0.8%1.9%4.2%9.2%-15%13%0.9%2.7%7.1%14.5%-20%6%1.7%2.7%7.5%18.9%-25%3%2.4%1.8%6.8%22.5%Unconditional Average:0.8%2.1%4.5%9.5%P/E de-ratingTimemore than...spent1 month3 months6 months12 months-5%54%63%64%67%75%-10%30%62%65%68%76%-15%13%62%67%73%83%-20%6%63%62%74%93%-25%3%66%54%76%98%Unconditional Average:63%69%73%80%Average S&P 500 return in the next...Hit ratio positive S&P 500 returns in the next...
  10. Global Investment Research10Our Risk Appetite Indicator dropped to an intraday low of -2.5 during the carry unwindSource: Datastream, Haver Analytics, Goldman Sachs Global Investment ResearchOur Risk Appetite Indicator (RAI) had dropped to an intraday low of -2.5 on August 5th, but has slightly rebounded since then-4-3-2-1012919497000306091215182124RAI momentum (Bloomberg: GSRAIM)Risk Appetite Indicator (Bloomberg: GSRAII)Last closeAugust 5thintraday low
  11. Global Investment Research110%10%20%30%40%50%60%70%< -30%-30% to -20%-20% to -10%-10% to0%0% to10%10% to20%20% to30%30% to40%> 40%Subsequent 3-month S&P 500 return distributionUnconditionalRAI below -1.0RAI below -1.5RAI below -2.0RAITimebelow...spent1 month3 months6 months1 year1 month3 months6 months1 year1 month3 months6 months1 year-0.5027.9%1.4%3.3%5.4%8.4%69%73%74%76%-3.6%-5.8%-7.5%-12.0%-0.7518.6%1.6%4.1%6.6%8.8%69%75%73%74%-4.0%-6.0%-7.8%-13.1%-1.0011.4%1.5%4.6%8.1%9.3%68%75%75%72%-4.4%-6.6%-8.3%-14.4%-1.256.3%1.5%4.4%9.0%9.6%66%72%76%74%-5.1%-7.6%-9.3%-15.8%-1.503.5%1.8%4.7%11.3%15.5%65%68%78%82%-6.5%-9.4%-11.2%-15.9%-1.752.3%2.7%4.7%12.8%20.3%67%64%79%87%-6.8%-10.0%-12.2%-15.3%-2.001.1%4.1%6.1%14.1%26.0%68%60%74%92%-7.1%-10.7%-13.5%-16.4%Unconditional0.8%2.3%4.6%9.1%64%70%74%80%-2.7%-4.8%-6.7%-9.1%S&P 500 avg. returns in the subsequent...Hit ratio positive returns in the subsequent...Average max drawdown in the subsequent...Even at low RAI levels there can still be large drawdowns, especially in high vol regimesRAI below -2 historically signalled a better asymmetry for risky assetsSource: Datastream, Haver Analytics, Goldman Sachs Global Investment ResearchFrom very low RAI levels the asymmetry for 12m returns is positive with less drawdown riskFrom RAI levels below or close to -2, the asymmetry to add risk for the medium term improves materially but near-term drawdown risk remains0%10%20%30%40%50%60%< -45%-45% to -30%-30% to -15%-15% to0%0% to15%15% to30%30% to45%45% to60%> 60%Subsequent 12-month S&P 500 return distributionUnconditionalRAI below -1.0RAI below -1.5RAI below -2.0
  12. Global Investment Research12From current RAI levels, subsequent growth data mattered for S&P 500 returnsSource: Datastream, Haver Analytics, Goldman Sachs Global Investment ResearchPositive asymmetry for equity returns in the next 6 months from the current levels of our RAI improves if growth holds upData since 1991. CAI: Current Activity Indicator-60%-40%-20%0%20%40%60%-4.0-3.5-3.0-2.5-2.0-1.5-1.0-0.50.0S&P 500 subsequent 6m returnGS Risk Appetite Indicator (level)Full SampleRAI bottom decileRAI bottom quartile & Global CAI in 6m > 3.5%RAI bottom decile & Global CAI in 6m > 2.5%Last datapoint
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