What's ahead for global equities?

- India's rise to second-largest economy # # --------------------------------------------------------------- The key takeaways today: - Why equity markets could be “fat and flat” from here - Pharma has $700 billion available for acquisitions and investment - Forecasts for the future of food and U.S. inflation Was this newsletter forwarded to you? ([Sign up now.]( --------------------------------------------------------------- Global equities are poised for “fat and flat” returns Equity markets have performed relatively well in the first half of the year, but returns are likely to be relatively subdued from here, says Peter Oppenheimer, chief global equity strategist and head of European macro research at Goldman Sachs Research. “Because we have high valuations, particularly in the U.S. equity market, and we've got relatively low profit growth, and we have an alternative in pretty attractive cash rates or interest rates, we think that the index prospects remain relatively flat from here,” he tells host Allison Nathan on the latest episode of [Goldman Sachs Exchanges](. Equity markets have entered the late optimism phase of a typical cycle, with this cycle exhibiting “fat and flat” returns, he says. “Growth is really the central driver and this year we've seen very little in the way of underlying profit growth. What's going to be crucial…[are] expectations about whether we can avoid recession and what kind of economic and profit recovery we'll see over the next one or two years,” Oppenheimer says. --------------------------------------------------------------- How India can become the second-largest economy by 2075 As India's population of 1.4 billion people becomes the world's largest, its GDP is forecast to expand dramatically. Goldman Sachs Research [projects India will have the world's second-largest economy by 2075](. For India, a key to realizing the potential of its growing population is boosting participation within its labor force as well as providing training and skills for its immense pool of talent, says Santanu Sengupta, Goldman Sachs Research's India economist. “The population growth will continue,” he says, pointing out that India's population has one of the lowest ratios between its working-age population and its number of children and elderly. “So that really is the window for India to get it right in terms of setting up manufacturing capacity, continuing to grow services, continuing the growth infrastructure.” India's economy is also becoming more balanced. While the country imports most of the commodities needed for its very large population, rising services exports are helping reduce India's current account deficit. --------------------------------------------------------------- Pharmaceutical companies have $700 billion for acquisitions and investment The global [pharmaceutical sector has around $700 billion at its disposal to acquire other companies and invest in research]( and development, according to Goldman Sachs Research. That war chest will be important as patents expire for some of the industry's blockbuster drugs. “The pharmaceutical industry will need growth, and at this time they are sitting on a tremendous amount of cash,” says Asad Haider, head of the healthcare business unit in Goldman Sachs Research. “The baseline expectation is that there is going to be continued M&A.” In addition, he says there's progress in the development of new treatments, and there are signs that surgical procedure volumes are on the rise. Meanwhile, MedTech is expected to be the industry's best performing subsector in the second half of the year, according to a midyear investor survey conducted in conjunction with Goldman Sachs' 44th annual Global Healthcare Conference. --------------------------------------------------------------- The Markets: How institutional investors are navigating market crosscurrents Policymakers in London and Washington are still looking to contain inflation, while China's economic growth appears sluggish. We spoke with Elizabeth Burton, client investment strategist in the Client Solutions Group in Goldman Sachs Asset Management, about how large institutional investors are navigating these crosscurrents in the markets. Start your Friday mornings with our new podcast, [The Markets 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. --------------------------------------------------------------- Soup to nuts: The future of food Meat and seafood substitutes, energy drinks, snacking and pet food are the future of food, at least when it comes to the categories leading the food and beverage industry's sales growth in the coming decade, according to Goldman Sachs Research. Geographically, India, Brazil and Nigeria are expected to be significant growth drivers during that span, even as the U.S. and China remain the biggest contributors. Those categories and places are expected to be bright spots as the industry's organic growth surge ebbs and as inflationary pressures recede, senior analysts Jason English and Bonnie Herzog write in the team's report. On an absolute dollar growth basis, they expect categories like bread, rice, bottled water and salty snacks to lead the pack. On the other end of the spectrum, our analysts project that processed cheese, dessert mixes and soup will see the most moderation in per-capita consumption, at least within the North American market. “We expect growth to be led by companies in growth-advantaged categories and markets, namely snacking and emerging markets,” they write. --------------------------------------------------------------- Forecast Change: Core U.S. inflation to fall more than expected this year The decline in U.S. core inflation stalled during the first half of the year, but there are reasons to expect those declines will resume this summer and beyond, [according to Goldman Sachs Research]( - Wholesale auction prices for used cars have fallen 9% (peak-to-trough through mid-June), and our economists expect that trend to continue. - The seasonal adjustments used in CPI and PCE inflation calculations are being distorted by the rebound in post-lockdown prices in mid 2020. - List rental prices for apartments have decelerated sharply, and Goldman Sachs Research expects there to be less pressure on lease renewals. - The labor market has [rebalanced significantly](. With those factors in mind, our economists lowered their core PCE inflation forecast for December 2023 by two tenths to 3.5% (year-on-year). --------------------------------------------------------------- Quoted at GS “One of the biggest mistakes we make in our country is this sense that when you go to college, you're done with the learning phase of life. When you go to college, what I hope is you've now learned how to learn. What defines great careers is the learning you do over the next 40 years.” Raj Mahajan of Goldman Sachs and Ken Griffin of Citadel — Citadel founder and CEO Ken Griffin shares his advice on the importance of being a lifelong learner on an episode of [Goldman Sachs Talks](. He joins Goldman Sachs' Raj Mahajan to discuss Citadel's businesses, fostering innovation and careers, and the business of problem solving. [Watch the full interview](. --------------------------------------------------------------- Briefings Brainteaser: Which labor force has grown the most? The supply of workers has grown in many developed economies since the Covid pandemic. Which of these places has had the biggest increase in its labor force in percentage terms? A) U.K. B) U.S. C) Japan D) Canada [Check the answer here.]( --------------------------------------------------------------- Goldman Sachs in the news [CNBC]( July 5 [New Goldman Sachs' report reveals historic underfunding at HBCUs (5:38)]( [Fortune: Commentary]( June 30 [NBA draftees' high income doesn't equal wealth. Here are the unique challenges that await them]( --------------------------------------------------------------- --------------------------------------------------------------- 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. 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