U.S. Stocks Offer Best Chance for Solid Returns in 2024: Goldman Sachs
Goldman Sachs Wealth Management believes that U.S. stocks remain the best investment option for solid returns in 2024. The wealth manager’s Investment Strategy Group points out that the U.S. market continues to be the leading market globally, with expectations of rising earnings for U.S. companies. Despite concerns about high valuations, U.S. stocks have historically outperformed other markets, delivering impressive returns.
U.S. Stocks Overvalued but Still Outperforming International Markets, Says Report
While U.S. stocks appear overvalued by some measures, they have outperformed international markets consistently. According to Goldman Sachs’ Investment Strategy Group, U.S. stocks have been cheaper than current levels only 10% of the time since World War II. In contrast, U.S. stocks have delivered annualized returns of 16% compared to 10% for developed countries outside the U.S. and 6% for China. These figures highlight the long-term resilience of U.S. stocks despite concerns of overvaluation.
Goldman Sachs Advises Investors to Stay Invested in U.S. Stocks despite Overvaluation
Despite concerns of overvaluation, Goldman Sachs recommends that investors remain invested in U.S. stocks. The size, strength, and diversity of the U.S. economy, coupled with potential interest-rate cuts by the U.S. Federal Reserve, are expected to support strong earnings growth for U.S. companies in 2024 and reduce the likelihood of a recession. While the Investment Strategy Group expects returns from U.S. stocks to be in the mid- to high single digits, they still believe U.S. stocks will outperform cash and bonds in the next five years.
U.S. Economy’s Size, Strength, and Diversity Support Strong Earnings Growth: Goldman Sachs
Goldman Sachs highlights the U.S. economy’s balanced nature, which supports steady earnings growth across various sectors. The U.S. economy remains the preeminent market globally due to its large economy, high GDP per capita, and liquid markets valued at over $70 trillion. In contrast, the report points out China’s reliance on debt-financed investments and a debt-to-GDP ratio exceeding 300%. This indicates the challenges faced by China’s economy, including declining domestic consumption and a regulatory crackdown on private businesses.
Private Markets Remain Favorable for Investment, says Goldman Sachs Wealth Manager
Despite lower returns compared to the past, Goldman Sachs still believes in the value of private markets. The wealth manager prefers private equity, private credit, and real estate as investment options, estimating an incremental return of approximately 3% in a well-diversified portfolio. This outlook is driven by the increasing trend of companies staying private as they grow, rather than going public. However, Goldman Sachs is cautious about hedge funds due to their higher fee structures, inconsistent market-beating performance, and fewer tax advantages compared to private equity.
In summary, Goldman Sachs Wealth Management believes that U.S. stocks offer the best chance for solid returns in 2024, despite concerns of overvaluation. The U.S. economy’s size, strength, and diverse sectors provide a favorable environment for steady earnings growth. While private markets remain favorable for investment, caution is advised regarding hedge funds.
Analyst comment
Positive: U.S. Stocks Offer Best Chance for Solid Returns in 2024, U.S. Stocks Overvalued but Still Outperforming International Markets, Goldman Sachs Advises Investors to Stay Invested in U.S. Stocks despite Overvaluation, U.S. Economy’s Size, Strength, and Diversity Support Strong Earnings Growth, Private Markets Remain Favorable for Investment.
Neutral: None.
As an analyst, I predict that the market will continue to be driven by strong earnings growth in the U.S. The size and diversity of the U.S. economy, along with potential interest-rate cuts, are expected to support solid returns for U.S. stocks in 2024. Private markets also remain favorable for investment, particularly in private equity, private credit, and real estate. Caution is advised with hedge funds due to higher fees and inconsistent performance.
