I had a chat with Senior Analyst at Goldman Sachs yesterday. Below is the summary of that conversation and of Goldman’s approach to the current market conditions:
Federal Reserve Action and US Economic Outlook
The FED’s recent decision to cut rates by 50 basis points was taken in the context of steady GDP growth of 3%, combined with stock markets that were near all-time highs. This marked a divergence from historical patterns where recessions typically followed such cuts. Historically, when the Federal Reserve has cut rates without an ensuing recession, the S&P 500 has gained an average of 17% in the following 12 months.
Despite the current cut, there is uncertainty regarding whether a recession will follow. For example, Goldman Sachs forecasts GDP for the US as follows:
- 2.8% growth for 2024
- 2.3% for 2025
- 2.0% for 2026
These projections suggest a slight deceleration in economic growth over the coming years. The S&P 500, with its current earnings multiple, is positioned at twice the average level seen during previous easing cycles, meaning the margin for error is tight for investors. As such, caution is necessary given these elevated valuations, although the primary market trend remains bullish.
Stock Market and Investment Strategy
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