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Goldman Sachs stock market outlook: Seven interesting things we learned

By Connor Freitas

According to the Goldman Sachs stock market outlook, there is only a 20 per cent chance of a recession in the coming year

Goldman Sachs 2020 outlook

The Goldman Sachs stock market outlook for 2020 was recently released. As well as offering valuable intelligence on how the business world is expected to perform next year, analysts also provided a forecast for the wider economy. Here are 10 interesting things we learned from the Goldman Sachs overview.

1. The Goldman Sachs stock outlook is mixed

According to the investment bank, some well-established market patterns are going to begin reversing themselves in 2020. Goldman Sachs investment analysts say company profits and financial assets have been comfortably outperforming wages for several years, but this trend is set to come to an end. This reversal will not be sudden, and the report’s three authors said: “In 2020, we still expect the swing in the pendulum to remain quite gradual and the global economy to clock yet another year of progress.”

2. Profit growth is set to be “muted” in 2020

The Goldman Sachs stock outlook also warns that profit growth in the world’s most advanced economies is set to be “fairly muted” next year. This is because of how labour share is rising – the term used to describe the percentage of national income that’s devoted to covering wage costs. Figures suggest this has risen by two points to reach 56 per cent from 2015 to 2019. All of this is going to have a detrimental impact on the bottom line of big businesses.

3. Consumer spending is expected to keep growing

Don’t worry, the Goldman Sachs stock market outlook isn’t all doom and gloom. Economists believe that levels of consumer spending will remain strong and outlast weak levels of business investment. Households and businesses in many advanced economies are said to be in a strong position as we head into a new decade, and levels of spending are not being funded by credit.

4. The risk of a recession is not too great

Whereas analysts at other investment banks fear that a recession is just around the corner, it’s interesting that the Goldman Sachs overview suggests these concerns are somewhat overblown. One of its statistical models recently put the risk of a recession starting in the US during 2020 at just 20 per cent – considerably lower than the median level of 33 per cent that emerged during a Bloomberg survey of economic forecasters. As the authors explained: “We think many recession models – and thus many forecasters – overstate the importance of factors such as a flat yield curve and a low unemployment rate.”

5. The impact of the US-China trade war could lessen

Although the situation remains fluid, the authors of the Goldman Sachs Economic Outlook believed that the impact of the US-China trade war on GDP growth has the potential to lessen in 2020.

On the trade war, the authors pointed to the prospect of a “phase one” agreement that would remove a 15 per cent tariff on $150bn of Chinese imports come 15 December. It is worth noting that, since the report was released, optimism that this deadline will be met has been fading – with Donald Trump also threatening to target Brazil, Argentina and France.

6. A no-deal Brexit is less likely

Goldman Sachs also has an upbeat attitude towards the seemingly never-ending drama surrounding Brexit, especially after Boris Johnson secured a revised deal with the EU. Despite the fact that a December election was creating uncertainty, it says the “already low” likelihood of the UK leaving the trading bloc without a deal has decreased further.

Authors have also offered a prediction on the impact that Brexit could have on GDP after three years. They believe that leaving with a deal would still unlock growth of about 2 per cent – about one percentage point less than remaining in the EU. On the other hand, a no-deal scenario would result in a contraction of more than 5 per cent.

7. The biggest unknown in 2020 is the US election

One of the most telling Goldman Sachs stock market predictions explores the US presidential election – and the impact it could have on businesses. Authors cite figures which state there is a 36 per cent chance of the Democrats securing a majority in the Senate come November – an event that’s closely correlated to the result of the race to the White House.

The US election is significant because of the scrutiny that’s being paid to the Trump-era policy of cutting corporate income tax rates from 35 per cent to 21 per cent. Four key Democratic frontrunners – Joe Biden, Elizabeth Warren, Pete Buttigieg and Bernie Sanders – have all promised to partially repeal this cut to some extent. The bank’s analysis suggests that a full reversal would reduce the earnings of companies in the S&P 500 by 11 per cent come 2021.

FURTHER READING: Market predictions: will 2020 bring riches or a recession?

FURTHER READING: Amazon share price forecast for 2020 and beyond

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