From Our Briefings Newsletter

Published on22 JAN 2019

The article below is from our BRIEFINGS newsletter of 22 January 2019:

Briefly . . . Clients' Outlook on Risk, Recession and Returns

When will the U.S. economy enter a recession? How many times will the Federal Reserve hike interest rates in 2019? Those were among the questions asked of the 275 attendees at the annual Goldman Sachs Global Strategy Conference in London last week. We sat down with Goldman Sachs Research's Ian Wright to discuss what he learned from the responses -- and how they compare with our analysts' forecasts.

Do clients think we're headed for a recession?

Ian Wright: Just over 50 percent of clients expect a US recession at some point in 2019 or 2020. This differs from the view of our US economists, who view the likelihood of recession as relatively more remote at roughly 30 percent over the next two years. They think the prospects for a soft landing are better than many believe, primarily because the economic imbalances typically associated with recessions do not look particularly threatening at this point.

What's the dominant view on the interest-rate trajectories at the Fed and the European Central Bank?

IW: Just under a majority of clients expect one Fed hike in 2019, while our economists forecast a hike at two meetings this year with a probability greater than 50%. When it comes to the ECB's first rate increase, however, the close-to-uniform distribution of responses suggests clients are less certain. While our European economists believe a first hike will likely come in late 2019, they think that weaker growth numbers have made this a close call, with 2020 also a possibility.

How do clients think global equities will perform in 2019?

IW: A majority of the participants expect positive single-digit global equity returns in 2019. Very few forecast markets to fall or rally significantly, though it’s worth noting that almost twice as many respondents expect negative single-digit returns compared with 10-20% returns. Overall, the results suggest a slightly cautious attitude toward risky assets, which fits well with our expectation of a higher-volatility, lower-return environment.

Did any sector or regional preferences stand out?

IW: Many clients thought commodities and technology stocks -- two sectors that have de-rated materially in recent months -- will outperform globally in 2019. Many expect non-Asia emerging-market equities to fare the best. Optimism surrounding European stocks has waned over the past year: while 32% had expected the region to outperform in 2018, only 15% expect the same for 2019.