« Exchanges at Goldman Sachs

Markets Update: A Biden Presidency, a Possible Vaccine and the Future of the S&P

2020-11-13

David Kostin, Goldman Sachs Research’s Chief U.S. Equity Strategist, looks back at an events-heavy week and what it means for markets in the days ahead.

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
Welcome to our exchanges of Goldman Sachs Markets Update for Friday November thirteenth. Each week we check in the leader across the firm to get a could take watching in markets has been a particular busy weak with news around the presidential election and some news on vaccines and coordinating objects? You got out of college communication here at the firm and my guess. Today's David casting our chief- U S, equity strategist, David, walk back to the problem, thanks for taking the time was so much borne out, bullshit. You invited me even as a major we ve had to big developments in the past week. The binding victory were, we should say, provisional victory and the announced one of our successful trial of a coded vaccine. How do you view these two things and how did they move the market? So
Absolutely the vaccine was much more important than the election course. It always exciting and interesting the talk about the election, but we have to keep front centre that this was and is a public health crisis that started nearly a year ago and ultimate a solution. That crisis requires a medical advance and, of course the breakthrough appears to be. breakthrough by Pfizer on his vaccine is a significant development, because for the first time at least have a vision or a path perceived path, how you get to have worked, normalized society and so the rest, let the vaccine is so critical, as from Goldman Sachs four regions, point of view in our forecasts the markets perspective. This is supportive of the view that the accounts is actually to be growing pretty rapidly into thousand twenty one that supports I really market in a whole bunch of other things of importance in the consequences of the vaccine really can't be overstayed.
it came a little bit sooner Jake and maybe we had been anticipating. What did you thinking closer the latter part of November. There was a bit of a surprise at cape when it did, but ultimately that is the more important what you do see the equity market. The rally in the snow They depend on a board normalized societies, those big hotels, crews lines? Airlines, always stocks, that at reason, now to be able to rally, could be, would look into the future and bring that a more normal environment forwards. I think that was that the real critical issue from our equity market perspective- so, while the presidential elections been decided with apologies to the whole, that's control. Congress remains up in the air. How do you see that affecting Paul see initiatives at a wash them so my last words I didn't mean to suggest that the election was totally
important was just at the magnitude of the virus was still born. Therefore, the vaccines critical. So there is a lot of uncertainty, even though the Senate will appear likely to remain the republican hands and, more importantly, to say that as a divided governmental, Congress. The uncertainty does remain. There we'll be resolved clearly until the fifth of January, a couple more months of a little bit of uncertainty, which, broadly speaking, what the market is expected. Is that it's gonna be divided government, that is The reasons why the market rallied as well because you had a reduction in uncertainty. So palace the uncertainty as one of the key measures we look at and that has come down because their work without debate you're legislation with respect either taxes or fiscal stimulus becomes less probable and a reduction in uncertainty is also associated with a higher gently violations and equity market. You're so smaller stimulus, less That's a big tax package suitable
all that mind how you think about well yes until the end of this year, and next so important for the end of this year is three thousand seven hundred, and so we lifted by about two hundred points, as we had in this they didn't telegraphed in our report back in September, saying that if you added a government. It would like it to get the market moving through the higher and backup, guess remains now raise three thousand seven hundred on the let's be five hundred an equally important. In two thousand and twenty one we published this week are outlook for the new year and we have a four thousand three hundred target at the end of two thousand and twenty ones that basically, for this Well, what foraging? Almost twenty percent return Greece over the next God fourteen months and that's driven largely by the normalization it autonomy, equity markets, earnings going along with that and ultimate that's taking me every price with the interest rate staying supernova,
without the seven hundred and this year is giving you an upside about four percent plus or minus, depending on the day. So United chopped Davy bad Fact that allow the Essen p performance outperformance has been on the back of these mega cap stocks, but you have a different view now tell us more about that, so the story of twenty twenty is all about. We'll call it big tack and the five largest stocks in the market. Facebook, Amazon, Apple, Microsoft, Google collectively they account for nearly a quarter of the ESA people. private equity capitalization, so roughly a quarter of the market is represented by five companies. We ve never had a level of market concentration, this high, in history, so it's very, very chunky market, terminology and these stocks are up nearly fifty percent since the start of the year of fifty percent
the other four hundred. Ninety five stocks are basically around four percent. So if we think about the nature of the returns structure, market structure if there really has been restored, these companies and the gap between the overall index performance and the typical start is extremely wide. Much much wider than normal and so we think about looking into next year, what kind of strategies the more probable outcome is that you Have some of the media and stocks are typical company, probably outperforms summer, these large economies doesn't mean these larger companies don't do well, it just means are relative basis. You probably have some catch up It's one of the areas that we focused on as a unique opportunity set in the market, specific topic of conversation with plant This week, pay so beyond the catch up. Based on your current forecasts will submit sectors. What sectors do
back to overrun under perform, based on your thinking now to the healthcare sector. Jake is the lowest valuation, the cheapest relatives. I wish it to the market in forty years. That is really powerful statement. You have to go all the way back to women. regionally and ninety ninety three or when everything was looking to help restructure order, the healthcare sector. When start fitted her well level ten years ago in the heart of the Obama Chair Debates held your socks treated at very low levels, but were even more images. today. That's her Dramatic, it's been so that's a value opportunities that is uncertainty and policy, but ultimately, that is in the area of focus. Historically, the sector, often jibs down and trades yonder, performs at the end of the election and then once the election is pass, the secretariat, there's always considered uncertainty around policy. It Bobby Healthcare, while the way is now past, and so these are the stocks they start out
very attractive valuations, a and b there that traditional patter. Now we expected in the second, so that's an area of focus on the value side, so we always keep track consensus. How does your outlook compared to the good sense outward for the? U S stock market of the next year, and how do you account for any discrepancy? make money, is a portfolio manager is have a view that view be different from consensus and have consensus move towards your view as if Europe, but for a mantra saying as a strategies, as investor basically you that maybe is different from consensus and have that gap narrow, and so our forecasts in earnings bidding about profits for next year. one hundred seventy five dollars a recipe. Five hundred burnings there of the other strategies, is right. One hundred fifty five dollars to get by thirteen percent gap and the overall endless community is wrong. One and sixty eight dogs around five percent gap and the expected in that I have is: you'll have paused
of earnings, revisions and possibilities. Revisions across the market is likely to lead to a higher level of accuracy. Why accounts for that? Difference is ok, Television is one. Is that the vaccine? We have a very optimistic view, a government that is likely to be not just the approval, but the approval and the manufacturing in the distribution of enough doses. a vaccinated, good portion of the country and therefore allows the economy to grow more rapidly. So the first issue is better medical outlook. Therefore, you get better economic growth and the second is the idea that some of the interest rate biomed, because that's like the Roman, very low. That does support some of the growth sectors. Some of this health care start as well. The number of technology companies- and I don't know- the two reasons why our level of pressure from market is pre optimistic, gets above what the consensus is right now
What better vaccines quicker vaccines would be good for the world as well as good for the markets. So what are the risks to outlook today and how do you think about the downside risks? So there are a couple of important risk. clearly. The spike involving nineteen cases is concerning. That is planned, We're going to remain. an issue for the next several months when the northern hemisphere and it's called a whether that does raise the concerns, so this is happening but where there's an ability to manufacturing deliver enough of the potential that seemed so that's one primary. risk- and, I would say, that's a point of uncertainty about result, we will stop Look through that in terms of the normalization, the second, you could think while his some the balance sheet issues is quite a lot of leverage that companies have taken on in terms of operating their business over the last, seven eight nine months as the heart of the endemic, so revenues are down for many companies have taken on more debt. The idea of does the economy recovers. What exactly is that ability of
a small, a good sized businesses to accommodate that. I was the fiscal system, as would be the third item, that there is some expectation and really work, need our society basis for unemployment, give it so high to get more of them so a bridge to the other side. If you well some fiscal stimulus, standard unemployment benefits, things like that, I think are concerned would be if you dont, have a sufficient amount, in size and timing of that that would cause some concerns about the slowdown in the carnatic. Those are three primary risk. We think about. Or a deal well, thanks again for joining us today. It was good to hear from you act for everything back includes deception,
exchanges? Goldman Sachs? Thank you for listening and if you join the shall we hope you subscribe and Apple pod gas in liberating or a comet. This pod gas was accorded on Thursday November twelve near two thousand twenty months fullest. All price references and market forecasts correspond to the date of this recording this pod cash should not be copied, distributed, published or reproduced in whole or in part. The information contained in this package does not constitute research or recommendation from any Goldman Sachs Entity to the listener. Neither Goldman Sachs nor any of its affiliates makes any representation
or warranty as to the accuracy or completeness of the statements or any information contained in this podcast in any liability, therefore, including in respect of direct indirect or consequential loss or damage, is expressly disclaimed. The views expressed in this podcast, or not necessarily those of Goldman Sachs and Goldman Sachs, is not providing any financial, economic, legal, accounting or tax advice or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by Goldman Sachs too that listener, nor to constitute such person a client of any Goldman Sachs Entity,
Transcript generated on 2021-07-01.