Neill Nuttall, Co-Head of Asset Management Multi-Asset Solutions at Goldman Sachs, said that despite geopolitical risks, the global growth environment is strong, inflation is easing, and global central banks are cutting rates, which is positive for risk assets, and suggests an "overweight" position on the S&P 500, preferring tech, energy and industrial stocks, but being cautious on defensive, utility and discretionary stocks.

The S&P 500 has hit new highs this year, and Nuttall believes that the 12-month forward P/E ratio of 22 times is above historical average, but the forward P/E ratio of the S&P 500 Index is 32 times, meaning that other equity indices are around 16-17 times the long-term average, which is consistent with the long-term average in the current environment.

He recommends cyclical stocks, preferring energy stocks, and believes that energy stocks are currently attractive. As for industrial stocks, they will benefit from the fiscal stimulus of the Inflation Reduction Act and infrastructure around the chip.

Considering the positive outlook for artificial intelligence (AI), he does not suggest an "underweight" position on tech stocks, as the impact of AI is still in its early stages, and the beneficiaries of AI will inevitably be data, including collecting and using data, and there may also be other potential beneficiaries that have not been discovered. As AI is built and developed, the challenge of energy shortage faced by high-end chips will change over time.

Nuttall also believes that stocks outside the US are relatively cheap compared to the S&P 500, such as the UK, where the forward P/E ratio is 11-12 times, and the European stocks are also relatively cheap compared to the S&P 500, reaching a record high.

Nuttall is "overweight" on the Nikkei 225. He explains that 43% of companies in the Nikkei 225 derive their profits from overseas, so converting to yen is positive, but in reality, the impact on returns is limited, as the benefits of a weak yen are offset by domestic challenges due to inflation entering. However, 42% of the shares in the Nikkei 225 are cyclical stocks, so they will benefit from the global easing cycle.

He points out that US economic growth has been above trend, but is now easing, and believes that the tightening trend will continue after seasonal and special factors pushed inflation higher in the first quarter, creating an environment for rate cuts. Goldman Sachs expects the Fed to cut rates two to three times by January 2024, making fixed income assets more attractive.