Goldman Sachs' Meena Flynn: We're encouraging our clients to continue to stay invested

Market Positioning - Clients are encouraged to stay invested and deploy incremental capital over a 6 to 18-month period, anticipating potential drawdowns [2][3] - There is an 80% probability of a 10% market drawdown, but historical performance shows a 200% return since December 2016 despite being in the 10th decile [3] Client Sentiment - Client sentiment is mixed, with wealth management clients being neutral to risk-on; 30% of family office clients plan to decrease cash holdings in favor of public and private equities [4][5] - Hedge funds are positioned at the 40th percentile of net long, while mutual funds hold $170 billion in cash, indicating potential for increased market participation [5] Economic Outlook - The economy is expected to slow down towards the end of the year but is projected to pick up in 2026, influenced by fiscal and monetary stimulus as well as a weaker dollar [7][8] - Confidence in the Federal Reserve's actions is noted, with expectations of continued rate cuts in a growing economy [8][9] Capital Expenditure and AI - Capital expenditure related to AI has doubled from $150 billion to $300 billion over the last two years, with current spending at 50% of cash flows compared to 100% during the tech bubble [11][12] - The market is heavily influenced by AI investments, which are expected to positively impact revenue generation [10] Valuation and Market Trends - Current valuations for the largest five stocks are at 28 times, significantly lower than the 43 times in 2021 and 50 times during the tech bubble, suggesting no bubble formation [12][13] - The market is driven more by earnings than the economy, with expectations of moderate growth into 2026 [15][16] Small Cap Performance - Small caps have shown strong performance, being up in eight of the last nine weeks, benefiting from a growing economy and declining rates [16][17] - Despite this, there is a cautionary note regarding the potential for large and mid-cap stocks to outperform small caps, as seen in previous years [18]