Taking Stock of Our 2018 Outlook: (Un)Steady as She Goes
Investment Strategy Group
Goldman Sachs Private Wealth Management
As many of you know, we do not typically release a midyear update of our annual Outlook. This year, however, we are deviating from the norm. Since we published our 2018 Outlook report, (Un)Steady as She Goes, the tug-of-war between the steady factors supporting the financial markets and the unsteady undertow threatening to undermine them has continued unabated. When market participants focus on the steady factors, such as growth in world economies and corporate earnings, the equity markets appreciate; when investors' focus shifts to the unsteady undertow, such as global geopolitical tensions and increasing populism, volatility rises and equity markets depreciate.
The US equity market, as measured by the S&P 500, has returned 5.9% through July 20. At first look, it appears that our 2018 forecast of a 7% expected return for US equities may well be on track. However, this total return masks a high level of market volatility. On February 6, volatility as measured by the VIX index reached a 2018 intraday peak of 50, a level that had been exceeded only 1% of the time since the inception of the VIX in 1990.
This heightened volatility has been evident in the large daily and weekly swings in equity markets. After rallying by as much as 8% in the first three weeks of 2018, the S&P 500 declined nearly 12% between January 26 and February 9. About a month later, the market registered another decline of about 9%—albeit after rising nearly 11%.
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The Investment Strategy Group is a part of the Investment Management Division of Goldman Sachs and is not a part of the Goldman Sachs Global Investment Research (GIR) Department. The views and opinions expressed by the Investment Strategy Group may differ from the views and opinions expressed by GIR or other departments or divisions of Goldman Sachs.