Why the stock market may be ‘bulletproof' – our new markets podcast

- Plus: The US is poised for an energy revolution. # # --------------------------------------------------------------- In today's edition: - The commercial real estate market is facing a “nearly perfect storm.” - China's economic recovery is defying expectations. - And the first episode of our new Markets podcast has landed. (Was this newsletter forwarded to you? [Sign up now]( --------------------------------------------------------------- Navigating the ‘perfect storm' in commercial real estate Risks are growing for the commercial real estate market. A “nearly perfect storm” of sharply higher interest rates, declining occupancy rates and a wave of refinancings is hitting the sector at the same time credit availability is tightening, explains Jeffrey Fine of Goldman Sachs' Asset & Wealth Management business [on the latest episode of our Exchanges podcast.]( “We've got a big rightsizing in the market that we're going to have to confront that is going to be the talk of the next 6 to 12 to 18 to 24 months in our space,” he says. Office properties are the “weak link” in the sector, which is facing more than a trillion dollars of maturing loans over the next two years, adds Lotfi Karoui of Goldman Sachs Research. The recent stresses in the regional bank sector are the latest headwind to hit commercial real estate, which relies heavily on loans from small banks. While losses are likely to be more “front-loaded than usual, history would tell you that losses play out over many years," Karoui says. "They don't materialize instantaneously.” The silver lining: Private investors are stepping in to lend to commercial property owners as smaller banks are forced to step back, Fine says. “You're seeing capital around the world mobilize to try and take advantage of the private credit opportunity in corporate as well as in real estate. “It's a really interesting supply-demand play that a lot of investors are taking advantage of right now.” --------------------------------------------------------------- The Markets: A ‘bulletproof' stock market? Countervailing forces in the global economy are helping to keep markets resilient in the face of a challenging environment, says Tony Pasquariello, global head of hedge fund coverage for Global Banking & Markets, on the inaugural episode of [The Markets]( a new weekly podcast from Goldman Sachs Exchanges. A “remarkably strong” labor market, China reopening and the lack of further crises from regional banks have all helped to keep stocks range-bound, he says. “I don't mean to say it's been uniformly good news,” Pasquariello says. “But issues like deposit flight and credit quality were generally viewed as better than feared” in the banks' latest earnings results. Every Friday, in 10 minutes or less, our new Markets podcast will break down the key factors driving the economy. You can find it on Apple, Spotify, or wherever you get your podcasts. --------------------------------------------------------------- China's surprising economic recovery China's economy is recovering more quickly than most forecasters anticipated. Goldman Sachs Research's MAP surprise index, which measures the performance of a country's economic data against consensus expectations, shows that China's economic activity in the first quarter was surprisingly strong. The country saw higher-than-expected loan and credit growth in March; strong trade growth, especially in terms of exports (exports rose 14.8% year-on-year); and first-quarter GDP growth of 4.5% year-on-year, which again beat expectations. Goldman Sachs Research's 2023 China GDP forecast is unchanged at 6% year-on-year [but it has front-loaded its quarterly projections.]( Our economists forecast China's year-over-year growth to be 8.1%, 5.4% and 6% in the second, third and fourth quarters of 2023 versus their previous forecasts of 8%, 5.2% and 6.5%. --------------------------------------------------------------- Forecast Change: UK inflation is hotter than expected The U.K.'s headline inflation rate is proving to be more stubborn than forecasters expect, coming in at 10.1% (year-on-year) in March. As a result, Goldman Sachs Research increased its forecast for headline inflation to 7.1% year-on-year in 2023 (from 6.4%) and 3.1% year-on-year in 2024 (up from 2.2%). And while there are signs that the U.K. labor market is beginning to cool, the country's wage growth continues to exceed expectations. Together with the recent improvement in the U.K's growth outlook, GS Research now expects the Bank of England to hike interest rates by another 25 basis points in May. --------------------------------------------------------------- The Big Number: US is poised for an energy revolution [$3,000,000,000,000]( That's the amount of infrastructure investment that renewable power technology is expected to trigger, delivering twice the scale of energy produced by the shale revolution of 15 years ago, [according to Goldman Sachs Research.]( Inflation Reduction Act will play an outsized role in realizing this potential, by providing an estimated $1.2 trillion of renewable energy incentives by 2032. All told, the IRA is creating the most supportive regulatory environment in clean tech history. The early years of the [new revolution]( will focus on electrification through renewable power, transmission, storage and charging networks, and building upgrades, Michele Della Vigna, head of Natural Resources Research, writes in the team's Carbonomics report. Later, spending for clean hydrogen spending and carbon capture will accelerate. As electric vehicles make up a larger share of the auto market, demand for oil will decline significantly after 2030. The drive for electrification and clean energy will likely spur demand for natural resources such as aluminum, copper, lithium and nickel. --------------------------------------------------------------- The creator economy could approach half a trillion dollars by 2027 [The “creator economy” has mushroomed in recent years]( as digital media consumption has increased and technology has lowered barriers to content creation, according to Goldman Sachs Research. The creator economy is also enabled by new platforms such as TikTok and new formats from incumbents like Facebook and YouTube for sharing short-form video, live-streaming channels and other forms of user-generated content. The total addressable market of the creator economy could double in size over the next five years, from $250 billion today to $480 billion by 2027, Eric Sheridan, senior equity research analyst covering the U.S. Internet sector, [writes in the team's report.]( That growth is roughly in line with the team's estimates for growth in global digital advertising spend over this time. At least at this point, the large incumbent platforms may have an advantage in attracting creators and their loyal fans. Sheridan writes that more creators are moving to these platforms as competition heats up for their content and audiences. --------------------------------------------------------------- Quoted at GS - “The revolution here is the revolution of knowledge.” — That's how our Chief Information Officer Marco Argenti describes AI's potential. [During our Disruptive Tech Symposium in London]( Argenti compared Large Language Models — which underpin chatbots like ChatGPT — to the invention of the printing press. He thinks AI will change the “way we accumulate, codify and distribute knowledge.” - “We're going to think of medicine very differently 50 years from now...We're going to do one-time procedures to change your genome, and hopefully you're preventing disease or completely curing yourself of disease.” — Samarth Kulkarni, CEO, CRISPR Therapeutics, recently [joined Talks at GS to discuss the current state of biotechnology and the opportunities for gene-editing therapies.](goldmansachs.com/insights/talks-at-gs/samarth-kulkarni.html?chl=em&plt=briefings&cid=421&plc=body) Goldman Sachs' Dan Dees & Marco Argenti at our Disruptive Tech Symposium. --------------------------------------------------------------- Briefings brainteaser: A red hot US job market While it's showing signs of cooling, the U.S. job market remains unusually strong: It added more than a million jobs during the first quarter of 2023, according to seasonally adjusted non-farm payroll data. Other than during the Covid pandemic, when was the last time the U.S. added that many jobs in a single quarter? A) 2006 B) 1999 C) 1997 D) Never [Check your answer here](. --------------------------------------------------------------- Goldman Sachs in the news [Business Insider]( 19 [The banking fiasco sent shockwaves through markets — and now threatens to curb growth and lending, Goldman CEO David Solomon says]( [Financial Times]( April 17 [Apple and Goldman Sachs offer U.S. savings account with 4.15% annual interest]( --------------------------------------------------------------- --------------------------------------------------------------- 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 Goldman Sachs Global Banking & Markets, please [click here]( for information relating to Goldman Sachs Global Banking & Markets material and your reliance on it. The Investment Strategy Group, part of the Asset & Wealth Management business (“AWM”) of GS, focuses on asset allocation strategy formation and market analysis for GS Wealth Management. Any information that references ISG, including their model portfolios, represents the views of ISG, is not financial research and is not a product of GS Global Investment Research and may vary significantly from views expressed by individual portfolio management teams within AWM, or other groups at GS. To the extent this newsletter includes material from Goldman Sachs Asset Management, please [click here]( for additional disclosures. [Click here]( to unsubscribe. © 2023 Goldman Sachs, All rights reserved. 200 West Street, New York, NY 10282, USA --------------------------------------------------------------- [GS.com]( | [Careers Blog]( | [Privacy and Security]( | [Terms of Use]( [Twitter](