Tech layoffs don't signal a looming recession

- Plus: Discover why the future for retirees' savings is far from certain. Enjoy some of the top intelligence from Goldman Sachs.  --------------------------------------------------------------- In today's edition: - Bonds are giving stocks a run for their money, [according to Goldman Sachs Research](. - The recent spate of tech layoffs is ["probably not a sign of an impending recession."]( - Could the [future of agriculture be vertical?]( 🌱 (Was this newsletter forwarded to you?[>Sign up now.]( --------------------------------------------------------------- Is it time to switch from stocks to bonds? Interest rates have been low since the global financial crisis, making stocks seem like the only choice for many investors. - [But bonds are making a comeback]( U.S. investment-grade corporate bonds yield almost 6%, have little refinancing risk and are relatively insulated from an economic downturn. Investors can lock in attractive real (inflation-adjusted) yields of almost 1.5% with 10-year and 30-year Treasury inflation protected securities (TIPS). - The S&P 500 Index of U.S. stocks, by contrast, has a dividend yield of about 1.7%, or a cyclically adjusted earnings yield of close to 4%. - This shift points to a relatively low equity risk premium (the extra compensation investors get for buying stocks instead of risk-free Treasuries). But timing matters. Bond yields are still low by historical standards, especially after recent declines. Inflation is running at a faster clip than the targets set by major central banks, suggesting policymakers could surprise markets with additional rate hikes. If the U.S. economy turns out to be more resilient than anticipated and inflation stays high in 2023, U.S. Treasuries could fall further. That would weigh on equities, which is similar to what's been happening most of this year. “We see potential for bonds to be less positively correlated with equities later in 2023 and provide more diversification benefits,” Christian Mueller-Glissmann, head of asset allocation research within portfolio strategy, wrote in the team's 2023 Outlook. “But until central banks stop hiking and inflation normalises further, they are unlikely to be a reliable buffer for risky assets.” --------------------------------------------------------------- Spiking tech layoffs probably don't signal impending recession Mass layoffs in big tech probably aren't a sign of big trouble for the wider U.S. economy, [according to a new report from Goldman Sachs Research](. The authors cite three main reasons why the recent headline-grabbing job cuts are “probably not a sign of an impending recession.”  - Tech sector employment makes up a relatively small percentage of the entire U.S. labor market. Employment at “internet publishing and broadcasting and web search portals” – which the authors say is the sub-industry for most major tech companies – accounts for less than 0.3% of total payrolls. Even by more encompassing definitions of the sector, tech layoffs are not large enough to cause a meaningful change to overall labor market dynamics, they conclude. - The authors don't expect laid-off workers to stay unemployed for long. “Tech job openings remain well above their pre-pandemic level, so laid-off tech workers should have good chances of finding new jobs,” according to the report. - Tech layoffs haven't historically been a leading indicator of a deterioration in the overall labor market. Right now, Goldman Sachs Research sees no indication that layoffs are rising significantly in other industries. “In fact, the main problem in the labor market is that labor demand is too strong, not too weak,” the authors write. --------------------------------------------------------------- Why retirement expectations often fall short of reality Above (L to R): Michael Moran and Allison Nathan of Goldman Sachs Rising interest rates, high inflation and market volatility are throwing Americans' retirement readiness off track. In a recent episode of[ Exchanges at Goldman Sachs]( Michael Moran, a senior pension strategist in Goldman Sachs Asset Management, breaks down the findings from the team's recent report, [Retirement Survey & Insights Report 2022, Navigating the Financial Vortex]( explaining how today's complex backdrop, as well as competing financial priorities, are affecting retirement plans. - More than half of surveyed retirees reported their current income was less than half of their pre-retirement income. “That's a pretty alarmingly low percentage when you consider that we often consider 70% as the starting point for the amount of income in retirement you need to replace in order to sustain your standard of living,” Moran tells senior strategist Allison Nathan. - Current workers are facing a high amount of stress with almost 60% of respondents reporting feeling anxious about managing their retirement savings. “Out of all the different generations, Generation X is the most stressed,” Moran says. - Inflation is front and center for both current workers and retirees. “That challenge feeds into other challenges that these individuals face,” Moran says. “The current economic climate just makes them more pronounced.” --------------------------------------------------------------- Could vertical farming be the future of agriculture?  An example of basil growing in a vertical indoor farm. The food and agriculture system is responsible for 30% of all greenhouse-gas emissions, according to Irving Fain, the founder & CEO of Bowery Farming, a vertical farming company that specializes in digitalized, urban agriculture. Bowery creates controlled environments where crops can grow year-round. “We take the uncontrolled variable of climate and we control it,” Fain tells Kim Posnett, the global head of investment banking services at Goldman Sachs,[ in an episode of Talks at GS](. “And it completely opens up an entirely new paradigm of agriculture.” Stacking food indoors under light might seem like a simple idea, but the technology, research and effort that go into it are extensive, especially when it could be crucial to the future of farming and humanity. “We're losing land, not gaining it,” Fain says. “What we can do is we can produce the equivalent supply from a field in a hundredth the space of land.” “The ability to strip out the uncertainty and the unreliability from an increasingly challenging climate, geopolitical landscape, supply chain, labor environment — that is going to be critically important,” Fain says. --------------------------------------------------------------- BRIEFINGS brainteaser: Hedge funds now outnumber…Taco Bells? It's estimated that there are now more hedge funds than Taco Bell restaurants in the world. To the nearest thousand, how many hedge funds are there? A) 5,000 B) 6,000 C) 7,000 D) 8,000 [Check the answer here.]( --------------------------------------------------------------- ICYMI: In the media [The Wall Street Journal]( 1 [The power of mattering at work]( [CNBC]( November 29 [Goldman Sachs: Energy industry has been under-investing for past 8 years]( (4:53) [BloombergÂ]( 29 [Goldman's Kostin on market forecast, liquidity, margins]( (7:21) --------------------------------------------------------------- --------------------------------------------------------------- Some of the images used in this newsletter are sourced via Getty Images. The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. Goldman Sachs believes the data in this newsletter is accurate, but does not verify its accuracy independently and does not warrant or guarantee that it is accurate or complete. Goldman Sachs has no obligation to provide any updates or changes to the data. No investment decisions should be made using this data. To the extent this newsletter includes material from the Goldman Sachs Global Markets Division, please [click here]( for information relating to Global Markets Division material and your reliance on it. To the extent this newsletter includes material from Goldman Sachs Asset Management, please [click here]( for additional disclosures. [Click here]( to unsubscribe. © 2022 Goldman Sachs, All rights reserved. 200 West Street, New York, NY 10282, USA --------------------------------------------------------------- [GS.comÂ]( |  [Careers Blog](  | [Privacy and Security](  | [Terms of Use]( [Twitter](