Will the drop in stock market volatility last?

- Also: Find out how Goldman Sachs is looking to drive capital towards a more sustainable future. # # --------------------------------------------------------------- The key takeaways from today's edition: - Why have price swings in the U.S. stock market been so subdued?  - So far, earnings season has been less rocky than investors feared. - And we look at which jobs are most at risk with the growth of AI automation. (Was this newsletter forwarded to you? [Sign up now]( --------------------------------------------------------------- The lull in stock market volatility isn't expected to last Even as traders grapple with a slowing economy, banking turmoil and geopolitical worries, [stock market volatility in the U.S. is hovering around its lowest level in more than 20 months.]( The decline is partly due to surprisingly buoyant economic data, says Christian Mueller-Glissmann, head of asset allocation research within portfolio strategy at Goldman Sachs. While investors are concerned about the risk of a U.S. recession, current data reveals a sound economy: Employment and consumer spending have been strong, and historical modelling shows that the health of the labor market is a key determinant of financial market volatility, he says. - At the same time, inflation is showing signs of cooling. The sudden and unexpected concerns about stability in the regional banking sector, meanwhile, upended traders' expectations for rate hikes by the Federal Reserve. Pricing in financial markets now suggests that traders expect interest rate cuts later this year, which has supported U.S. equities, especially large cap tech stocks, Mueller-Glissmann says. - Mueller-Glissmann doesn't expect low volatility to last all year. A big reason is that a longer period of lower volatility usually coincides with a perky economy. Goldman Sachs Research expects U.S. GDP to expand 1.6% in 2023, which is below its historical trend, and growth should slow from there. There is also continued uncertainty about the U.S. debt ceiling. - Just under the surface, investors are making some important adjustments. The VIX measures the expected 30-day volatility of the S&P 500 Index; it is upward sloping, a sign investors expect volatility to increase in the future. The cost of puts has gone up relative to the price of calls (puts are a bet that a security will fall in price; calls are a bet in the opposite direction). “The market is starting to be more worried about downside risk than upside risk,” Mueller-Glissmann says. “Convictions levels are low, but people are feeling bearish.” --------------------------------------------------------------- The Markets: earnings in focus 🎙️ As companies on both sides of the Atlantic report earnings this week, their results are turning out better than expected — which has been good news for the markets so far, says Goldman Sachs Research's Sharon Bell on The Markets, a [new weekly podcast from Goldman Sachs Exchanges.]( Bell explains how big tech companies are benefiting from “resilience in their underlying businesses and also investments in new areas like AI,” while China's reopening, falling gas prices and a still-strong labor market have also served as tailwinds this quarter. “The first quarter has been good, but what worries me a little bit is that the second and third quarters will be softer,” Bell says. Start your Friday mornings with our [new Markets podcast from Goldman Sachs Exchanges.]( In just 10 minutes or less, we break down the key issues moving markets. Find us wherever you listen to podcasts. --------------------------------------------------------------- Navigating the trillion-dollar path to a more sustainable economy The challenges of navigating the climate transition were clear in 2022, as Russia invaded Ukraine, energy prices climbed and low investment in energy infrastructure left regions like Western Europe vulnerable to supply shocks. On top of that, inflation touched a four-decade high and monetary policy tightening further clouded the economic outlook. These developments raised new questions for business leaders and investors trying to achieve their sustainability goals. However, “that's no reason to change course,” GS Chairman and Chief Executive David Solomon says in the[ firm's 2022 Sustainability Report, Navigating Complexity: A Client-Centric Approach to Sustainability.]( “We've long believed the transition to a more sustainable economy would be a decades-long effort,” Solomon writes in his letter to shareholders introducing the report. To date, Goldman Sachs has achieved approximately 55% of its 10-year, $750 billion sustainable finance target laid out three years ago. This year's report focuses on how Goldman Sachs is working with clients and partners to help them achieve their sustainability objectives. Specifically, [it captures notable progress around six key themes.]( A key part of the journey will require trade-offs between investing in carbon intensive projects and increasing investments in clean energy technologies, says Kara Mangone, global head of climate strategy, who joined this week's [Exchanges at Goldman Sachs podcast]( along with Michele Della Vigna, head of natural resources research in EMEA. “Investing in sustainability cannot be about excluding the most carbon intensive parts of our economy,” Mangone says. “It needs to be about how do we allocate capital and support those industries as they look to invest in decarbonization over time.” Legislation should also change the economics of investing in renewable technologies. “It's difficult to overstate the importance of the Inflation Reduction Act in the U.S.,” Della Vigna says on the podcast. “We think it's the biggest and most revolutionary cleantech set of incentives any country has ever done.” --------------------------------------------------------------- Forecast Change: German GDP to grow faster than expected Germany's hopes of [avoiding a recession look brighter after business sentiment improved in April.]( The Ifo Business Climate Index, a leading indicator of German economic activity, increased to 93.6 this month (up from 93.2 in March), driven by improving sentiment in the manufacturing and construction sectors. The German composite PMI, which monitors the health of Germany's economy, also ticked up in April to 53.9 (from 52.6 in March), as the orders and employment components rose. While an energy crisis and stress on the banking system are likely to weigh on Germany's near-term growth, the country is expected to narrowly avoid a recession, according to Goldman Sachs Research. Our economists have increased their Germany GDP 2023 forecast to 0.5% year-on-year (up from 0.2%). --------------------------------------------------------------- Which jobs are most at risk with AI automation? About 25% of current work in the U.S. could be automated by artificial intelligence, [according to Goldman Sachs Research.Â]( 50% of administrative support tasks may be exposed to automation by AI, while construction and maintenance work for building grounds is expected to have relatively little exposure. Most jobs are only partially exposed to AI automation, our economist Joseph Briggs says. He thinks AI will likely complement many more jobs than it replaces, boosting productivity, increasing output and even creating new job opportunities. “There's no question that generative AI is becoming better at performing high-level human tasks,” Briggs says. “So, while we do see signals of major disruption ahead, we also see enormous economic potential.” For more charts and details, [watch this one-minute video](. --------------------------------------------------------------- How AI is accelerating innovation in healthcare Healthcare is a rich environment for AI and machine learning (ML), says Salveen Richter, lead analyst for the U.S. biotechnology sector at Goldman Sachs Research. The industry produces and uses immense amounts of data from diverse sources. And there's a need for these technologies: It's estimated that it takes more than eight years and $2 billion to develop a drug, and the likelihood of failure is quite high; only one of 10 candidates gain regulatory approval. [AI, including generative AI, is among technologies that have the potential to create safer, more efficacious drugs and streamline personalized care.]( The pandemic may mark an inflection point for AI and healthcare. “AI helped companies develop Covid-19 mRNA vaccines and therapeutics at unprecedented speeds,” Richter says. “The Covid-19 pandemic underscored the need for digital solutions in healthcare to improve patient access and outcomes, and represented a key inflection point for telehealth and remote monitoring.” --------------------------------------------------------------- Quoted at GS “The biggest lesson you learn is you've got to back A+ management teams and A+ people. It's amazing when I think back on the same business with manager X versus manager Y. The top management teams just find a way to win.” [In an episode of Exchanges at Goldman Sachs: Great Investors]( Stephen Pagliuca, a senior advisor and former co-chair of Bain Capital, speaks about the lessons he's learned from his career in private equity and his role as the co-owner of the Boston Celtics franchise. --------------------------------------------------------------- Briefings Brainteaser: A concrete plan on carbon emissions Concrete is the most widely used human-made material and is the second most consumed material on Earth, after water. Its large carbon footprint stems from the production of cement, its key ingredient. What percentage of global emissions is concrete estimated to account for? A) 2% B) 7% C) 15% D) 21% Check the answer below. --------------------------------------------------------------- Goldman Sachs in the news [Bloomberg]( April 25 [Goldman's Kostin says 'pay a premium for boredom' (6:27)Â]( [CNBCÂ]( 24 [Consumption and services drive higher-than-consensus growth in China: Goldman Sachs (2:35)Â]( [BloombergÂ]( 22 [Sharmin Mossavar-Rahmani: Weighing recession risksÂ]( --------------------------------------------------------------- The correct answer to our Briefings Brainteaser is B. The cement industry constitutes approximately 7% of total global CO₂ emissions, according to a report by the International Energy Agency. [Learn more]( --------------------------------------------------------------- --------------------------------------------------------------- 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.comÂ]( |  [Careers Blog](  | [Privacy and Security](  | [Terms of Use]( [Twitter](