Midyear Investment Outlook...The Pulitzers and Kendrick Lamar...AI and the M&A Landscape

Insights on markets, industries and the global economy [Goldman Sachs]( [BRIEFINGS] July 30, 2018 Midyear Investment Outlook: Staying the Course At the start of the year, the Goldman Sachs Investment Strategy Group (ISG) released its 2018 outlook, making the case for staying invested in the equity markets, despite an increasingly uncertain and unsteady political and geopolitical landscape. In response to subsequent spikes in market volatility and intensifying geopolitical headwinds, ISG released a midyear outlook, Taking Stock of Our 2018 Outlook: (Un)Steady as She Goes, reexamining the underlying factors driving markets. Given the steady backdrop of broad-based economic and earnings growth, robust employment and wage growth, and improving business investment, ISG reiterates the recommendation to stay fully invested, with a strategic overweight allocation to US assets. "There may well be a time when the unsteady undertow becomes too strong and overwhelms the steady factors, or when the steady factors point to a less attractive outlook," the authors said. "But halfway through 2018, we do not think that time has yet arrived. In fact, there has been improvement in many of the steady factors." [Read report]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Midyear%20Investment%20Outlook%3a%20Staying%20the%20Course&body=https%3a%2f%2fwww.goldmansachs.com%2fwhat-we-do%2finvestment-management%2fprivate-wealth-management%2fintellectual-capital%2fisg-mid-year-outlook-2018%2findex.html%3fcid%3deml-np-briefings-briefings-textlink-201801--) Talks at GS: Dana Canedy on the Pulitzer Prizes, Kendrick Lamar and the Role of a Free Press Above (L to R): Sarah-Marie Martin of Goldman Sachs and Dana Canedy, administrator of the Pulitzer Prizes In May of this year, rapper Kendrick Lamar made history by winning the Pulitzer Prize for Music, the first time the Pulitzers have ever recognized a hip hop artist. In a Talks at GS episode, Dana Canedy -- who made history herself as the first woman and person of color to become administrator of the prizes -- discusses the jury's decision to recognize Lamar. "The jury [of classically trained composers and music historians] was deliberating on some work...[that] had hip hop influences," she said. "And someone said, 'If we're considering work that has hip hop influence, why aren't we considering hip hop itself?" Canedy, a former journalist with The New York Times and co-author of the Pulitzer Prize-winning series "How Race is Lived in America," also discusses the Pulitzers' critical role in defending a free press, which she argues is critical to democracy and having an informed citizenry. [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Talks%20at%20GS%3a%20Dana%20Canedy%20on%20the%20Pulitzer%20Prizes%2c%20Kendrick%20Lamar%20and%20the%20Role%20of%20a%20Free%20Press%20&body=https%3a%2f%2fwww.goldmansachs.com%2four-thinking%2ftalks-at-gs%2fdana-canedy.html%3fcid%3deml-np-briefings-briefings-textlink-201801--) The Long & Short of It: AI and the M&A Landscape The hype surrounding artificial intelligence, or AI, is "well deserved" as a growing number of companies use AI to tap their own proprietary data assets, says Goldman Sachs Investment Banking's Jung Min, who has already seen the technology start to shape the M&A landscape. Bolstered by the need to build an AI competency, companies are hiring teams of AI scientists and acquiring data assets. Min expects mature corporations, rather than startups, to derive the most value from AI given their volume of historical data -- data that is highly valuable to draw conclusions and predict future outcomes in AI models. "The value of AI is going to show up in surprising places," Min says. "And where I would focus is actually on...mature companies that have the business process and the data that's going to underlie the AI models of the future." [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=The%20Long%20%26%20Short%20of%20It%3a%20AI%20and%20the%20M%26A%20Landscape&body=https%3a%2f%2fwww.goldmansachs.com%2four-thinking%2fpages%2fai-investment-landscape.html%3fcid%3deml-np-briefings-briefings-textlink-201801--) Getting Clarity on Personal Finance's Mobile Shift Above (L to R): Jake Siewert and Adam Dell of Goldman Sachs Smartphones and simplicity are two of the "tectonic shifts" disrupting the consumer finance landscape, according to entrepreneur Adam Dell, founder of Clarity Money, a personal finance app that was acquired by Marcus by Goldman Sachs in April 2018. As consumers increasingly use mobile devices to make financial decisions -- from getting a credit card to taking out a loan -- financial incumbents and startups are vying to simplify the money management experience by presenting information clearly and reducing hidden fees. "These kinds of [transparent] options are now proliferating in the marketplace and it's very good news for the consumer," Dell says in the latest episode of our podcast, Exchanges at Goldman Sachs. "It used to be if you wanted to borrow money, you could go to your friends and family, you could go to the bank, you could go to a pawn shop and that was pretty much it." [Listen to podcast]( [Subscribe]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Getting%20Clarity%20on%20Personal%20Finance%27s%20Mobile%20Shift&body=https%3a%2f%2fwww.goldmansachs.com%2four-thinking%2fpodcasts%2fepisodes%2f07-20-2018-adam-dell.html%3fcid%3deml-np-briefings-briefings-textlink-201801--) Briefly...on Capturing Emerging Dimensions of Risk and Return As head of Goldman Sachs Securities Division's Americas Equity Structuring Group, Stacy Selig and her team apply a mix of quantitative, technical and problem-solving skills to create solutions for investors when there's no readily available product on the market. We sat down with Stacy who explained how changes in market structure continue to drive demand for structured products and equity derivatives -- as well as boost the types of jobs available on Wall Street. It seems like we are seeing more market moves that aren't easily explained. What's driving that? Stacy Selig: We're in the midst of a multi-year change in market structure. Investors have long relied on macroeconomic factors to explain market moves. But the rise of systematic and quantitative investors in recent years has highlighted the importance of looking at other, less fundamental factors to understand the markets. At the same time, a broader understanding of factor-based investing -- which looks at certain traits such as size, volatility, value and momentum as predictors of returns -- has added new dimensions for investors to consider both as an investment opportunity and as another driver of returns in their portfolios. The past few weeks have been a difficult period for some quantitative managers. What do you make of the recent market moves and how is your team working with clients during this period? SS: In recent weeks, we've seen a number of quantitative funds and fundamental managers experience losses. During that time, clients looked to us to help them understand whether these issues were caused by macro events -- such as a rotation between emerging and developed markets, or a move from small- to large-cap stocks -- or whether there were other systematic causes at play, such as their exposure to the momentum factor. In other words, they wanted to determine the potential causes of portfolio performance. We have built models that can isolate the exposures of their portfolios and explain the drivers of their performance. These same tools also allow us to deliver customized products that provide investors with exposure to certain returns or hedges of specific risks. So, for example, an investor may just want to own Apple stock for fundamental, stock-specific reasons. Historically, those investors would hedge out market and sector beta. Now those same investors are taking factors, like momentum, into account when creating those hedges. Generally, as the market continues to mature and evolve, investors look to our team to help them generate returns or create customized hedges that are difficult to reconstruct on their own or through already available products. They are also looking for access to the tools themselves. Externalizing these portfolio tools and capabilities to our client base through Marquee -- the firm's digital platform for institutional clients -- has been a big focus for us. How have the changes in market structure affected the types of roles that are available on Wall Street? SS: Because of the complexity of the market, there's strong demand across Wall Street firms for so-called "sales strats and structurers." Our business, accordingly, has grown with the demand for the people, systems, tools and overall technology infrastructure to help identify, explain, access or hedge these newer dimensions of risk and return. The rate of change across data, technology and regulation is only accelerating the demand for these roles across the financial services industry. For structured products, in particular, because these solutions are multi-faceted, even "equity" products require a deep understanding of the other asset classes, such as currencies, interest rates, funding and credit. So you need deep and broad product expertise across the team. At the same time, you have to create a solution that goes beyond a client's particular market view to take into account that client's specific risk tolerance, tax, accounting, regulatory and jurisdictionally driven needs. It's a popular option for people who like to work with clients to solve complex problems. 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