Goldman Sachs Believes It's Time To Pivot Away from AI High-Flyers

Goldman Sachs Asset Management has released its mid-year outlook report. The report indicates that Goldman Sachs AM anticipates the U.S. economy to slow down to around 2% growth in the second half of 2024, and due to declining corporate earnings growth and political concerns, the U.S. stock index is expected to remain essentially flat.

Goldman Sachs AM also warns that U.S. stock investors should start diversifying their investments and move away from the early winners in the AI sector that have already seen significant increases.

U.S. Stocks Expected To Be Flat In The Second Half

In the report, Goldman Sachs AM states that it expects the U.S. economy to gradually cool down in the second half, which will also make the investment environment for U.S. stocks more complex - yet there are still opportunities, including a broader range of artificial intelligence stocks.

It is absolutely a soft landing, said Lindsay Rosner, head of multi-asset investment at Goldman Sachs Asset Management. As the data comes through, that's what we're seeing.

Rosner added that investors are very likely to see the Federal Reserve cut interest rates in the second half of 2024. She expects the Federal Reserve to start cutting rates in September, and after the first cut, the Fed is likely to continue at a pace of 25 basis points per quarter.

With the Federal Reserve's interest rate decline, Rosner anticipates that the U.S. fixed-income market will benefit. She said she has seen particularly interesting opportunities in the high-yield bond market and structured credit sector.

Alexis Deladerriere, global equity portfolio manager and head of developed markets at Goldman Sachs AM, said that due to the overall slowdown in earnings growth of U.S. stocks and increased domestic and global political concerns, he expects the U.S. stock market to be essentially flat in the second half.

It's Time To Move Away From AI Popular Stocks

It is worth mentioning that from the beginning of this year to date, the U.S. stock market has shown a highly concentrated trend: the increase in the U.S. stock market index is largely dominated by a few tech giants related to the artificial intelligence theme (especially the semiconductor giant Nvidia).

Deladerriere said that in the first half of 2024, the rise in U.S. stocks was mainly driven by five tech giants, and this single trend created half of the U.S. stock returns.

He suggests that investors should further diversify their investments: We believe you need to move away from these early winners in the AI field.

Rosner said, We are seeing decelerating earnings growth, and domestic and global political events may make the U.S. stock market volatile, Uncertain is just kind of the status quo right now.

Goldman Sachs AM believes that compared to U.S. stocks, Indian and Japanese stocks are particularly attractive at present because they are benefiting from various trends from artificial intelligence to combating climate change. Deladerriere also specifically pointed out the attractiveness of Japanese stock governance reforms.