Global Equity Strategy_ 2025 Outlook_ The Year of the Alpha Bet

Summary of Goldman Sachs Global Equity Strategy Conference Call Company and Industry Overview - The report focuses on the Goldman Sachs Global Equity Strategy and provides insights into the equity market outlook for 2025. It discusses the performance of global equities, particularly in the context of rising valuations and economic growth. Key Points and Arguments Market Performance and Valuation - Global equities have risen 40% since October 2023, with the MSCI world index up nearly 60% since the trough in 2022 triggered by rising interest rates [9][12] - The S&P 500's performance in 2024 has been one of the strongest since 1928, driven by optimism regarding peak inflation and a potential Federal Reserve pivot [9][11] - Approximately 50% of the equity return globally in 2024 has come from valuation expansion, reflecting growing optimism in lower inflation and interest rates [12][16] - The current 12-month forward P/E ratio for the US equity market is significantly above its historical averages, indicating stretched valuations [22][23] Economic Growth and Earnings - The forecast for total equity returns in USD is 10% through to the end of 2025, driven largely by earnings growth rather than further valuation expansion [5][48] - The report anticipates 2.5% real GDP growth in the US for 2025, which is above the consensus estimate of 1.9% [33] - Earnings growth is expected to be positive but lower than consensus forecasts, reflecting the view that margins have peaked in most regions [46][48] Investment Themes and Strategies - The report highlights four key investment themes: 1. Market Broadening Opportunities: Emphasizing diversification to improve risk-adjusted returns [5] 2. Selective Value: Identifying undervalued sectors, particularly in materials and utilities in the US, and telecoms and real estate in Europe [86][90] 3. Geographical Diversification: Favoring Japan and selected emerging markets for their low PEG ratios [89][90] 4. Enhanced Capital Market Activity: Anticipating increased M&A activity due to deregulation and stronger growth forecasts [93] Risks and Concerns - The report identifies two primary risks: 1. The potential for a market correction due to front-loaded returns and unknowns around tariff risks impacting global growth and inflation [51] 2. The unusual degree of market concentration, with the top 10 US stocks accounting for over 20% of the global index value, raising concerns about sustainability [55][58] Diversification and Alpha Generation - The report advocates for diversification strategies to enhance risk-adjusted returns, particularly through investments in sectors outside of technology and focusing on companies with strong fundamentals [66][80] - The Ex Tech Compounders strategy is highlighted as a way to capture growth outside of the dominant technology sector [76][80] Additional Important Insights - The report emphasizes that while the largest US companies have outperformed due to strong profit growth, there are risks associated with high market concentration and valuation [58][65] - The realized volatility of Ex Tech Compounders is significantly lower than that of the Magnificent 7, suggesting they can enhance portfolio stability [83] - The report concludes with selected investment ideas across the highlighted themes, including equal-weight S&P 500, US AI Phase 3 stocks, and high dividend yield strategies in Asia [99] This summary encapsulates the key insights and strategic recommendations from the Goldman Sachs Global Equity Strategy conference call, providing a comprehensive overview of the current equity market landscape and future outlook.