Episode Summary
Executive Summary: Goldman Sachs Private Wealth CIO Charmaine Mostavar Romani argues 2020 still offers “room to grow” for the economy and bull market, so clients should stay invested. She says recession risk is low due to a Fed pause, balanced financial conditions, and few imbalances, while U.S. market leadership remains intact. Key risks are geopolitical shocks and coronavirus, but these are viewed as temporary rather than thesis-changing.
Main Topics: 2020 Outlook: “Room to Grow” (Priority: 5/5): The report’s theme reflects Goldman’s view that both the U.S. expansion and bull market still have room to continue, though not indefinitely. Stay Invested Despite a Long Bull Market (Priority: 5/5): Romani defends remaining invested by citing favorable return odds during expansions and historical equity performance when recessions are not imminent. Low Recession Probability (Priority: 5/5): She argues recession risk is only about 20%–25% because the Fed is on hold, economic imbalances are limited, and only exogenous shocks could materially change the outlook. American Preeminence (Priority: 4/5): The U.S. remains the preferred strategic equity allocation because its structural advantages over other regions have widened since the financial crisis. Election-Year Volatility (Priority: 3/5): Historical patterns suggest strong equity returns in the third and fourth years of a first presidential term, but volatility depends more on how predictable the election is than on the calendar year alone. Geopolitical and Pandemic Risks (Priority: 4/5): China, the Middle East, North Korea, cyberattacks, terrorism, and coronavirus are highlighted as risks that could affect markets, though they are treated as hard to time and mostly temporary. Inflation Remains Muted (Priority: 3/5): Despite tighter labor markets and some price pressures, Goldman still sees a disinflationary backdrop with no strong evidence of a Phillips-curve-driven inflation pickup.
Key Arguments: The bull market can continue because expansions have a high probability of producing positive returns; Goldman cites an 87% chance of positive returns during an expansion. Historical data suggests attractive equity returns even when a recession is still 12-18 months away, supporting a stay-invested stance. Recession risk is low because the Fed has paused after tightening, which historically extends expansions. The U.S. economy appears balanced, with few major imbalances in housing, real estate, leverage, or household balance sheets. American preeminence remains intact because U.S. advantages in demographics, productivity, earnings growth, and resource base have widened. Election years can affect volatility, but the key determinant is whether the race is predictable or close; current uncertainty is too early to quantify. China is a long-term geopolitical risk, but investors should not make portfolio changes based solely on unpredictable geopolitical headlines. Coronavirus is expected to cause short-term volatility, but past pandemics suggest fundamentals eventually reassert themselves. Inflation is likely to remain subdued despite low unemployment because global disinflationary forces, especially from China, remain strong. Tax costs can make taking profits off the table less attractive than it seems, especially for long-held U.S. equities with large embedded gains.
Data Points: Return since March 2009: $6 for every $1 invested - Illustrates the gains from staying invested through the post-financial-crisis bull market. Total return: 500% - Equivalent performance cited for investments made in March 2009. Probability of positive return during an expansion: 87% - Used to justify staying invested when the economy is in expansion. Recession probability estimate: 20% to 25% (closer to 20%) - Goldman’s current assessment of recession odds. Six-month S&P return before recession: About 8% to 9% - Historical average price return when a recession is roughly a year or more away. Potential equity downside needed to offset taxes: About 29% - For a New York or California investor realizing long-term gains, markets would need to fall roughly this much to break even after taxes. Pandemic mortality rate comparison: 2% to 3% vs. SARS closer to 10% - Current coronavirus mortality is described as lower than SARS. Pandemic transmission comparison: Less infectious than SARS - Used to suggest coronavirus may be disruptive but not as severe as prior outbreaks.
Pivotal Quotes: "Room to Grow here is to suggest that both the economy has further room to grow as well as this bull market." — Charmaine Mostavar Romani: Explaining the report title and cover art. "For every dollar invested in March of 2009, our clients now have $6, so a 500% return." — Charmaine Mostavar Romani: Justifying why staying invested has remained the right recommendation. "We recommend our clients not adjust their portfolios just because these could be on the horizon at some point in the future." — Charmaine Mostavar Romani: On geopolitical risks and exogenous shocks.
Implications: Listeners are encouraged to remain broadly invested in U.S. equities, avoid overreacting to headlines, and weigh taxes before selling winners. The outlook favors patience, diversification, and a long-term view despite volatility from elections, geopolitics, or coronavirus.
About Goldman Sachs Exchanges
In each episode of "Exchanges," people from the firm share their insights on developments shaping industries, markets and the global economy.