The debate over US stock outperformance

EV battery prices falling faster than expected # # --------------------------------------------------------------- The key takeaways today: - Some think US growth and equity outperformance could fade - EV battery prices are falling faster than expected - The world's major powers have a "credibility crisis" - Gen Z values could boost the services economy - A different approach to ESG-oriented activism - Investors are seeking out more sophisticated sustainability data - Meet our new managing director class of 2023 - Brainteaser: How much negative yielding debt is left? Was this newsletter forwarded to you? ([Sign up now.]( --------------------------------------------------------------- Is US outperformance at a turning point? The US has had an exceptional decade. US economic growth and equities have outperformed and the dollar's global role remains unchallenged. But this outperformance has begun to show some cracks with US equities selling off over the past month. Rebecca Patterson, former chief investment strategist at Bridgewater Associates, believes US equities can continue outperforming over the next decade, led by tech and generative artificial intelligence. “Now that's a big statement because if we go back historically…you will see outperformance roughly for a decade, and then it tends to hand over,” Patterson says on [Goldman Sachs Exchanges]( which breaks down the topic from the latest [Top of Mind report](. “When I think about what could drive the next decade, I go back to tech being a possible catalyst to lead to another decade of US outperformance.” But Jean Boivin, head of the BlackRock Investment Institute, sees this as more questionable than in the past given several “mega forces” — rather than cyclical performance — are set to drive equity performance. “If we talk about the last 20, 30 years, I think [the US] has been exceptional...but as a forward statement, I think there's more question now. I still think that business conditions that create the possibility for companies to take innovation and develop at scale is still unmatched. But there are other conditions around demographics, around geopolitics, that can now dent this benefit more than they have in the past.” Meanwhile, Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer notes the US equity market is now very concentrated — with its exceptionalism owing to a handful of large companies — and is seeing increased competition from other asset classes in the current high-rate environment. “Investors need to think about diversifying geographically and across different factors and indeed sectors much more in the next decade than they were perhaps used to in the last decade,” he says. --------------------------------------------------------------- Why electric vehicle battery prices are falling faster than expected Not long ago, rising demand and component shortages sparked concern that “greenflation” would drive up prices for the batteries in electric vehicles. [That's subsiding as prices cool for battery metals]( which could help make EVs more competitive with traditional cars more quickly. Goldman Sachs Research now expects battery prices to fall to $99 per kilowatt hour of storage capacity by 2025 — a 40% decrease from 2022. Our analysts estimate almost half of the decline will come from declining prices of EV raw materials such as lithium, nickel, and cobalt. Battery pack prices are now expected to fall by an average of 11% per year from 2023 to 2030, writes Nikhil Bhandari, co-head of Goldman Sachs Research's Asia-Pacific Natural Resources and Clean Energy Research, in the team's report. As battery prices fall, the EV market is forecast to potentially achieve cost parity, without subsidies, with internal combustion engine vehicles around the middle of this decade on a total-cost-of-ownership basis. --------------------------------------------------------------- The global credibility gap: assessing underperformance and overreach in geopolitics Washington and Wall Street are worried about the same thing: geopolitics. After decades of relative international stability and increasing globalization, businesses and governments are now struggling to understand a new, more unpredictable, and more violent global reality. [But today's geopolitical shocks are connected by a great-power credibility crisis between the US and China]( which is compounding geopolitical instability and uncertainty, according to an article by Goldman Sachs' Jared Cohen, president of Global Affairs and co-head of the Office of Applied Innovation, and Ian Bremmer, president and founder of Eurasia Group and GZERO Media. The ongoing credibility crisis is changing geopolitics by creating geopolitical [swing states]( and shifting alignments between countries. It is also creating space for big technology companies to play a larger role in global politics while widening a global governance deficit. --------------------------------------------------------------- Millennial and Gen Z values could change the economy The [attitudes of young consumers could shift consumer spending]( according to Jen Sullivan of Goldman Sachs Asset Management. Sullivan says that when compared to their predecessors, millennial and Gen Z consumers are more likely to value experiences over physical possessions. Given these generations' rising prominence, “it's no surprise that over the past 20 years, we've seen the share of spending on services rise considerably,” she says. As the earning power of these generations continues to grow, Sullivan predicts “services stands to become a much bigger part of the global economy.” The market impact could be significant as well. “For long-term investors,” Sullivan says, “we believe industries levered to experiences — such as travel and live entertainment — could be particularly appealing.” --------------------------------------------------------------- Impactive Capital's private equity-approach to ESG-oriented activism Lauren Taylor Wolfe of Impactive Capital and Michael Brandmeyer of Goldman Sachs In contrast to the sharp-elbow tactics used by some activist investors, Lauren Taylor Wolfe and Christian Asmar set out in 2019 to launch an [activist investment firm that would take a long-term, collaborative approach to generate returns](. The result is Impactive Capital, an ESG-oriented firm that Wolfe says takes a private equity approach with management teams and aims to double or triple the value of their businesses over a three- to five-year period. And while Wolfe notes that environmental, social, and governance investing has become a politicized term, she says ESG isn't sustainable if it doesn't link to economic returns. “If companies can use an environmental, a social, or a governance tool to attract and retain the stickiest customer, the stickiest employee, the stickiest shareholder, what you've done is you've lowered your customer acquisition costs, you've lowered your employee retention costs, you've lowered your cost of capital with shareholders, and you've become the most competitive, the most profitable, the most valuable company in your industry,” Wolfe says on [Goldman Sachs Exchanges: Great Investors](. --------------------------------------------------------------- Quoted at GS “You have to go after it yourself and get your hands dirty.” — Sebastiaan Reinders, head of innovation and research at Goldman Sachs Asset Management's Sustainable Investing and Innovation Platform, [on investors seeking out increasingly sophisticated data on sustainability](. At the Goldman Sachs Global Sustainability Forum in New York, he said answering investors' sustainability questions requires a nimble and modern data platform as well as expertise and hard work, as not all the tools for uncovering that information are available off the shelf yet. --------------------------------------------------------------- Meet our new managing director class Congratulations to our Managing Director Class of 2023. [Read the press release](. --------------------------------------------------------------- Briefings Brainteaser: The end of negative yields The mountain of negative yielding bonds has shrunk dramatically from its peak of $18 trillion in December 2020, and the stockpile is expected to disappear as the Bank of Japan adjusts its negative interest rate policy. How much negative-yielding debt remained as of Nov. 1? A) $20 billion B) $1.2 trillion C) $3 trillion D) $5.6 trillion [Check the answer here.]( --------------------------------------------------------------- Goldman Sachs in the news [CNBC]( November 1 [The Fed is looking for a rate to be at for a long period of time: Goldman Sachs' Wilson-Elizondo (4:30)]( --------------------------------------------------------------- --------------------------------------------------------------- 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. Past performance is not indicative of future performance. 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. 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