Something went wrong, please try again later. A bond with a credit rating of BBB or above from an independent rating service such as Standard and Poors. Upgrades continued to outpace downgrades through December. We look forward to beginning a conversation to help you achieve your objectives and make the impact you desire. Source: Bloomberg. There can be no assurance that the forecasts will be achieved. The higher the P/E ratio, the more the market is willing to pay for each pound of annual earnings. The pace of rating downgrades and distressed situations in the healthcare space have begun to tick up as operating margins have been pressured and cash reserves previously bolstered by COVID-19 stimulus monies and investment market outperformance have eroded. The views expressed herein are as of December 31, 2022 and subject to change in the future. In 2023, we believe underlying economic and market conditions may get more challenging before they ease. We believe market participants will have to start allocating capital based on what the world may look like tomorrow, not what it was in the past. Powered and implemented byFactSet Digital Solutions. We have been cautious investing in several sectors since the onset of the pandemic, including the higher education and health care sectors both of which have been impacted by weak revenue and increasing labor costs. This material is provided for informational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. PLAN FIDUCIARIES SHOULD CONSIDER THEIR OWN CIRCUMSTANCES IN ASSESSING ANY POTENTIAL INVESTMENT COURSE OF ACTION. The figures for the index reflect the reinvestment of all income or dividends, as applicable, but do not reflect the deduction of any fees or expenses which would reduce returns. When you visit the site, Dotdash Meredith and its partners may store or retrieve information on your browser, mostly in the form of cookies. 2023 Goldman Sachs. This material contains information that discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions. Sources: S&P Rating Changes as of December 30, 2022 - Favorable includes: Upgrades, Outlook/CreditWatch changes to Positive or to Stable, or removal of CreditWatch Unfavorable includes: Downgrades, Outlook/CreditWatch changes to Negative, or placed on CreditWatch. Here's how the firm would play that environment. %PDF-1.6 % This tug-of-war between views on inflation and economic data may be a persevering theme throughout the upcoming year. (REUTERS/Andrew Kelly/File Photo / Reuters Photos). Can You? Credit Suisse was thrown a $54 billion lifeline by the Swiss central bank on Thursday to shore up liquidity . We expect this year to be less turbulent for markets, with inflation moderating and major central banks approaching the end of their tightening cycles. (iStock / iStock). To say 2022 was a tumultuous year is an understatement. Source: Goldman Sachs Asset Management, Macrobond. We conclude Section I with the key risks to our outlook beyond the recession risks, primarily focused on geopolitical flare-ups and possible new COVID-19 waves originating from China. Something went wrong, please try again later. Goldman Sachs expects worse UK recession in 2023 Bank tips economy to shrink 1% in downgraded forecast, but also predicts lower inflation and interest rates Gwyn Topham and Phillip Inman Sun. This growth, along with federal COVID related funds, contributed to multi-year revenue and expense expansion. That has Goldman cutting its U.S. Final rule adoption is still pending, so all eyes are focused on this as we progress through 2023. Over the last few quarters, Moody's and S&P have placed these sectors on negative outlook citing similar concerns. As such, issuers have turned to seeking additional verification, as a stamp of approval that projects are aligned with the intention of the label. The Fed's rate hikes are in the ballpark of what's ultimately needed to cool wage and price pressures, they said. Case studies and examples are for illustrative purposes only. All rights reserved. In Section II, we provide a detailed review of our economic outlook for key developed and emerging market countries. (REUTERS/Andrew Kelly/File Photo / Reuters Photos). Goldman Sachs raised its recession odds from 25% to 35% on Thursday. That said, the risk/reward trade-off for some credits within those sectors stick out as yields have gone higher. The Fed moved aggressively in 2022 to get inflation under control. dislocations and started to also include an element of textbook overheating in which Co-Head of Municipal Fixed Income, Goldman Sachs Asset Management, Head of Municipal Credit Research, Goldman Sachs Asset Management. Bank previously saw growth of 2.6% this year, 2.2% next. Welcome to the latest edition of the How2Wealth newsletter! USD per GBP The staffing shortages and expense-related challenges that plagued hospitals and continuing care retirement community (CCRC) credits in 2022 are likely to continue to for at least a portion of 2023. Goldman economist . About Us; We look forward to beginning a conversation to help you achieve your objectives and make the impact you desire. Learn more about us, our purpose and our commitment to clients. Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile. Income from municipal securities is generally free from federal taxes and state taxes for residents of the issuing state. Small cap company stocks involve greater risks than those customarily associated with larger companies. In Section I of this report, we provide the rationale for assigning a 4555% probability to the risk of a US recession in 2023. Seizing the opportunities these changes may create calls for a new approach rooted in a more holistic view of asset allocation with increased attention to risk. Clients portfolios experienced more volatility than usual because equities and bonds declined at the same timea rare occurrence that has been observed only 2% of the time since 1926. Credit Suisse was thrown a $54 billion lifeline by the Swiss central bank on Thursday to shore up liquidity after a slump in its shares and bonds intensified fears about a global . This Land Based Salmon Farming Market report provides an overview of the global market Share and analyzes market trends. Stay on top of the latest market developments, key themes, and investment ideas affecting your portfolio and practices. In 2023, the market will debate when the Fed will take a pausewith great attention to individual economic numbers each month. This material is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and makes no implied or express recommendations concerning the manner in which any clients account should or would be handled, as appropriate investment strategies depend upon the clients investment objectives. Please see additional disclosures at the end of this presentation. BIDEN SAYS DEAL AVERTING RAIL WORKER STRIKE AVOIDED 'REAL ECONOMIC CRISIS', The logo for Goldman Sachs is seen on the trading floor at the New York Stock Exchange (NYSE) in New York City. Goldman Sachs has again lowered its forecast for US economic growth in 2022, to reflect tighter financial conditions as the Federal Reserve aggressively hikes interest rates. Quotes displayed in real-time or delayed by at least 15 minutes. Sources: Goldman Sachs Asset Management, US Bureau of Economic Analysis. Access your favorite topics in a personalized feed while you're on the go. "This higher rates path combined with recent tightening in financial conditions implies a somewhat worse outlook for growth and employment next year," Goldman wrote. See here for a complete list of exchanges and delays. We believe 2023 will be a year to maintain a neutral position and let the elevated yields purchased in 2022 work for investors in the form of carry. The Fed implemented seventeen 25bp rate increases in 2022 catapulting the Fed Funds target rate from 0.25% to 4.50%. The views and opinions expressed by ISG may differ from those expressed by GIR, Goldman Sachs Asset Management, LP, or other departments or divisions of Goldman Sachs. Greenwashing refers to falsely marketing a project as environmentally friendly, often to lure in additional investor demand. They added, however, that a sharp increase in unemployment may be avoided, "since typically the job openings rate declines more, and the unemployment rate increases less, when the job openings rate is very elevated, like it is today.". Here are their 16 best quotes about the investor, Berkshire Hathaway's ownership, and navigating the pandemic and inflation. But the gap still remains "extremely high", and it can only be narrowed if the Fed convinces companies to lower job openings. All investments involve risk including possible loss of principal. It is not research and is not intended as such. 2023 US Economic Outlook: Approaching a Soft Landing . Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. Goldman Sachs just raised its odds for a recession as turmoil in the banking system continues to unfold. As we wrote in our 2022 Outlook, last year was a time for investors who had been underweight munis, short duration, and/or maintaining elevated cash levels to gradually get to a more neutral overall positioning as yields materially rose. Past performance does not guarantee future results, which may vary. Goldman sees US growing 2.4% in 2022 and 1.6% in 2023. "Until this week, markets had broadly ignored the threats that tightening policy was starting to uncover," Shah wrote in a note Thursday. Influential people and institutions across the globe rely on Goldman Sachs to support them in all they do. A year ago, the ination problem began to broaden beyond the initial pandemic-driven . Please see additional disclosures at the end of this presentation. Over the last week, Silvergate Bank, Silicon Valley Bank, and Signature Bank have all closed down, and other financial institutions including First Republic and Credit Suisse are facing turmoil. The Federal Reserve building in Washington. "We therefore expect that the recent tightening in financial conditions will persistin part because we think the Fed will deliver on what is pricedand therefore see a growth downgrade as appropriate," they added. Payouts to staff including senior executives were signed off by HSBC earlier in the . ", They added that following the failures of Silicon Valley Bank and Signature Bank, U.S. policymakers have taken aggressive steps to shore up the financial system, "but concerns about stress at some banks persist.". In addition to healthcare, we believe that there are a variety of areas that have the potential to offer an attractive risk/reward trade-off in high yield space. Past performance does not guarantee future results, which may vary. Gross Domestic Product for 2023 and sees the unemployment rate rising higher than previously expected. Municipal Securities are subject to credit/default risk, interest rate risk and certain additional risks. UBS Group AG is asking the Swiss government for a backstop if it were to buy Credit Suisse Group AG , Bloomberg News reported on Saturday. Under these scenarios, the velocity of revenue expansion will moderate significantly, and municipalities may require budgetary belt tightening for the first time in many years. We evaluate the key arguments in favor of and against a US recession, and note that although a recession is possible, it is not inevitable. **This reflects labor force participation. Demand from non-traditional buyers of municipal debt such as banks, insurance companies, and foreign investors will continue to be driven by relative valuations versus other fixed income asset classes. The rapid unraveling of the startup lender has fueled worries of potential bank runs at peers that could leave them scrambling for funds to meet deposit withdrawal requests. Silicon Valley Bank and Signature Bank marked the second and third largest bank failures in history, respectively, behind only Washington Mutual during the 2008 crisis. A U-shaped recovery is a type of economic recovery that experiences a recessionary decline followed by a gradual rise back to its previous peak. It also pertains to past performance or is the basis for previously-made discretionary investment decisions. Goldman Sachs wrote in a note to clients that it has reduced its forecast for 2023gross domestic product (GDP)to a gain of 1.2% from the previous 1.5%. Sources: Labeled Issuance: Bloomberg. Please. How It Works, Benefits, and Risks, Macroeconomics Definition, History, and Schools of Thought, Gross Domestic Product (GDP): Formula and How to Use It. Meanwhile, famed "Big Short" investor Steve Eisman warned that a pause in the Fed's tightening campaign would ultimately negatively weigh on stocks. Investopedia does not include all offers available in the marketplace. Quantitative easing (QE) is a monetary policy where central banks spur economic activity by buying a range of financial assets in the market. Please see additional disclosures at the end of this presentation. As of September 16, 2022. Percent of population. High yield municipal bonds generated returns of -13.10%, more than 450bps worse than its investment grade (-8.53%) counterparts in 2022. We spell out our one- and five-year expected returns and review our tactical tilts coming into 2023. In 2023, we think somebut not allof these headwinds will begin to abate. What Is Economic Stimulus? Dec 4 (Reuters) - Goldman Sachs on Saturday cut its outlook for U.S. economic growth to 3.8% for 2022, citing risks and uncertainty around the emergence of the Omicron variant of the coronavirus. Home inventory levels remain low and the leverage incorporated into dirt bond transactions nowadays is materially lower than those that were originated prior to the Great Financial Crisis (2007-2008). There can be no assurance that the forecasts will be achieved. The Federal Reserve has shaken the markets as it implements huge rate hikes in an effort to moderate the steepest inflation in 40 years. Tax-exempt refinancings became uneconomical for some issuers as AAA muni tax-exempt yields increased by 200bps and the 300bps increase in Treasury yields severely hampered issuance of taxable municipals for the purpose of refinancing previously issued tax exempt debt. G10, or Group of Ten, is a group of eleven industrial countries which co-operate on economic matters.. Following the trend in Europe as well as in other fixed income markets, the municipal fixed income team expects to see verified bonds represent a growing percentage of the labeled market. Analysts at the firm now expect year-over-year growth of 1.2% for the quarter, down 0.3 percentage points from their previous estimate. Economic expansion, shown in the GDP growth below, started in 2020 and has only recently started to decelerate (exhibit 5). Favorable supply and demand technicals, a continued strong credit backdrop, and a historical propensity for positive rebounds after negative return years should be catalysts for municipal outperformance in the year ahead. Investors may experience mid-single digit returns in 2023 as we begin the year with tax-free AAA muni yields between 2.50% and 3.50% and see the potential for a stable or potentially lower interest rate environment ahead. In our winter edition of Perspectives, we explore the structural developments that we believe will spark profound change. In this uncertain environment, we recommend our clients portfolios be positioned at their customized strategic asset allocation, where they are designed to ride out volatility and provide staying power in the event of geopolitical disruptions. Source: Bloomberg. Put simply, we believe 2023 is the year for investors to bring on bonds (BOB)., Strong economic and job growth bolstered muni credit in 2022. The central bank's aim is to have just enough job growth to keep the economy running well without contributing to rising inflation. The main reasons for this decline were (1) remaining federal aid dollars lessened the need to borrow for new projects and (2) a plunge in refinancing activity. Qg:y(%fy ]U3C:zt(bnWwtyu6m3|B 8_Yse_5UQ{uy5`oi~U9:u. As in previous years, investors should look to maximize after-tax yields by pivoting between tax exempt and taxable securities as valuations fluctuate. The projection for the unemployment rate is to rise to 3.7% by year-end, up from 3.6%, and rising to 4.1% by the end of 2023, from 3.8% previously. Goldman Sachs has no obligation to provide updates or changes to these forecasts. We, too, expect to see this trend continue, as investors and strategies aim to allocate more capital to bonds with environmentally and socially friendly projects. Goldman Sachs lowered its forecast for 2023 GDP growth to 1.2%, down from 1.5%. The gap between labor demand and supply will likely narrow in the next year, now that labor supply disincentives from generous unemployment insurance packages fade out, they noted. Though nominal issuance of ESG bonds is down slightly compared to 2021, this primarily reflects the lower levels of aggregate issuance driven by the huge increase in rates in 2022. Wider credit spreads driven by historic outflows, has created significant valuation dispersions. Therefore, a general rise in interest rates can result in the decline in the bonds price. One common measure of municipal valuations is the ratio of AAA tax-exempt municipal yields to comparable maturity Treasury yields. A loss of principal may occur. The bank said Sunday it now expects US gross domestic product growth to grow by 2.4% for the year, compared with its prior estimate of 2.6%. Read more:We interviewed the CEOs of 4 of Warren Buffett's most iconic businesses. Learn more about us, our purpose and our commitment to clients. As we begin the new year, we wanted to take a look at the global economic outlook for 2023 and share some insights from some of the biggest names in finance. While an adviser seeks to design a portfolio which reflects appropriate risk and return features, portfolio characteristics may deviate from those of the benchmark. Average new issue supply forecasts for 2023 call for $425BN in supplymore in-line with 2022 volumes versus 2021 and 2020. Refinancing volume is expected to remain constrained as absolute yields are likely to stay elevated and thus limiting the amount of deals that would bring interest cost savings to issuersa cause for decreased taxable supply. Dan Niles forecasts S&P 500 to 'bottom' middle of 2023. All rights reserved. As of December 31, 2022. Quarterly State and Local Total Receipts data is de-annualized. Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. Sources: S&P Rating Changes as of December 30, 2022 - Favorable includes: Upgrades, Outlook/CreditWatch changes to Positive or to Stable, or removal of CreditWatch Unfavorable includes: Downgrades, Outlook/CreditWatch changes to Negative, or placed on CreditWatch. FAQ - New Privacy Policy. The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. You can find out more about our use, change your default settings, and withdraw your consent at any time with effect for the future by visiting Cookies Settings, which can also be found in the footer of the site. Investors should be aware that a determination of the tax consequences to them should take into account their specific circumstances and that the tax law is subject to change in the future or retroactively and investors are strongly urged to consult with their own tax advisor regarding any potential strategy, investment or transaction. Heightened volatility was driven by persistently high levels of inflation not seen in decades, compelling the Federal Reserve to embark on a historic monetary policy tightening campaign and pushing the Fed Funds Rate from 0.25% to 4.50%1 (As of December 14, 2022). Taxable municipal issuance was the lowest since 2018 and more than 60% below 2020 and 2021 volumes due to the spike in Treasury yields, which made refinancings uneconomical for issuers. It is worth noting that this trend has slowed over the last few months. Mar 15, 2023 01:55 pm. Economists at the bank indicated the reason for the change was that they anticipate a pullback in lending by small- and medium-sized banks as they try to preserveliquidityin case they need to cover withdrawals. The views and opinions expressed may differ from the views and opinions expressed by Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. 10-year Treasury yields ended the year around 3.90%. This site requires JavaScript to run correctly. Influential people and institutions across the globe rely on Goldman Sachs to support them in all they do. A great deal of variability exists with this forecasting as (1) there is debate around if and at what pace inflation returns to acceptable levels, (2) whether the U.S. enters a recession, and (3) how the Feds monetary policy will respond to economic data. Goldman Sachs & Co. LLC is registered with the Securities and Exchange Commission (SEC) as both a broker-dealer and an investment adviser and is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC). 2 Noaa.gov (National Oceanic and Atmospheric Administration), as of October 11, 2022. The bank's economists forecast US GDP will expand by 2.4% this year, down from an estimate of 2.6%. Legal Statement. Any mention of an investment decision is intended only to illustrate our investment approach and/or strategy, and is not indicative of the performance of our strategy as a whole. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. Goldman said that small- and medium-sized banks play an important role in the economy, noting that banks with less than $250 billion in assets make up about half of U.S. commercial and industrial lending, 60% of residential real estate lending, 80% of commercial real estate lending, and 45% of consumer lending. All quotes delayed a minimum of 15 minutes. Income for some investors may be subject to the federal Alternative Minimum Tax (AMT). FILE PHOTO: Illustration shows destroyed SVB (Silicon Valley Bank) logo and UK flag. Issuers that took advantage of historically low borrowing costs to be overly acquisitive may find themselves overly stressed while those with experienced management teams and strong balance sheets should be better positioned to navigate the sectors challenges. As of December 31, 2022. Market data provided byFactset. "The macroeconomic impact of a pullback in lending will remain highly uncertain . With absolute yields near 15-year highs, we encourage investors to take advantage of the higher yield environment and unlock the power of carry to help drive returns over the next year. References to indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only and do not imply that the portfolio will achieve similar results. That would mean much tighter lending standards, which could be a drag on GDP expansion already affected by tightening in recent quarters. This compensation may impact how and where listings appear. Taxable issuance is expected to make up a much lower percentage (<15%) of overall municipal primary market volumes in 2023 compared to previous years (2020/2021 >30%). Equity markets dropped precipitously, interest rates rose at the fastest pace in decades and commodity prices gyrated in response to high inflation and geopolitical tensions. THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO. Average market consensus calls for interest rates to stabilize as we head into 2023. Further, given the continued strong credit backdrop, an appropriately sized allocation to lower-rated municipal credits may further enhance returns during the coming year. Invest in Education. Mutual funds may benefit disproportionately given the level of withdrawals encountered and their asset base relative to the size of the overall municipal market. LONDON (Reuters) - Goldman Sachs has cut its recommendation on exposure to European bank debt to neutral from overweight, saying a lack of clarity on Credit Suisse's future path would put pressure on the broader sector in the region. A loss of principal may occur. Subscribe to How2Wealth to keep reading this post and get 7 days of free access to the full post archives. Apart from the growth goal for 2023, other targets set by China include about 12 million new urban jobs and a consumer price increase of about 3 percent. Clients are growing more informed about the potential risks associated with investments across all markets and products, and the fear of greenwashing is no exception. China's promising growth. As of December 31, 2022. Please see additional disclosures at the end of this presentation. Unsurprisingly, investors reacted by selling municipals at a historic pace. 2023 FOX News Network, LLC. The world we live in is becoming more complex. As detailed in this Report, WilmerHale's audit found the three Goldman Sachs initiatives Since December, when it predicted 3.8% growth, it has cut its outlook more than once.Its economists said that since April, financial conditions have tightened to a level that should drag on GDP growth by about 1 percentage point, but also bring inflation down to the Fed's 2% target. Source: Goldman Sachs Global Investment Research 1 *Extrapolated before Dec 2000 using the newspaper help-wanted index based on methodology by Regis Barnichon, San Francisco Fed. In 2023, we provide a detailed review of our economic outlook for developed! Is de-annualized previously-made discretionary investment decisions, the risk/reward trade-off for some credits those., we think somebut not allof these headwinds will begin to abate be a drag on GDP already. In-Line with 2022 volumes versus 2021 and 2020 below, started in 2020 has... 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