Outlook 2024: Ewout van Schaick (GSAM)

27 december 2023

Outlook 2024

Ewout van Schaick (photo archive GSAM) 980x600.jpg

By Ewout van Schaick, Head of Sustainable MAS at Goldman Sachs Asset Management

What are the main opportunities and threats for 2024? What about AI?

‘We expect continued disinflation in the US and Europe, largely due to growth levels that are expected to remain below their historical trend. We also expect a further normalization of labour market imbalances, resulting in further loosening of labour market conditions in both regions. This should keep central banks on hold and might trigger markets to price in rate cuts over the medium term. This would be positive for US and European government bonds as we move beyond the peak of the hiking cycle. As we progress deeper into 2024, we could see a bull steepening of yield curves as front-end rates could start to reflect lower policy rates.

Turning our attention to the equity markets, the seemingly high valuations of US equity markets deserve a deeper analysis. When excluding the so-called Magnificent Seven, the S&P500 is offering an equity risk premium of 4.2%, which is in line with the average observed during the 2003- 2008 period when interest rates where in similar territory. Current earnings per share expectations are slightly below trend growth. However, there is the risk scenario for 2024 that equity markets will be surprised if growth turns out to be worse than anticipated next year due to the financial tightening already in the pipeline. The earnings guidance was already weak in Q3 2023, however the 2024 earnings have not been revised down yet.

On a more positive note, the opportunities in the AI space do not seem to be reflected in equity valuations or growth expectations at the moment. Big Tech names are incurring capex to build out their AI offerings and in 2024 should start showing some revenue from these products. If AI’s promise materializes next year, there is a strong potential for upside in the equity market.’