The United States will enter 2020 on firmer footing than it entered 2019, according to Goldman Sachs Research economist David Mericle, ultimately notching another year in its longest expansion on record. The two dueling themes that defined 2019—the uncertainty of trade tensions and the reprieve of interest rate cuts—are set to fade as both the Fed and trade-war escalations head for a pause. The US consumer will remain a bright spot and a key driver of growth, in Mericle’s eyes, bolstered by rising wages in an exceptionally strong labor market. But unlike previous cycles, labor market strength isn’t a clear harbinger of inflationary overheating and recession; recession probability is only 20% in the next year for the US, according to Mericle’s calculations.
Marquee QuickPoll: Bulls Retreat, but Remain Cautiously Positive on Trade and Brexit
This month’s Marquee QuickPoll of 1,151 Goldman Sachs clients showed a bifurcation in sentiment as clients retreated from their bullish views on markets last month. However, our clients remain broadly optimistic on Brexit and trade negotiations. Some of the key findings include:
Sentiment Splits: Sentiment was split into two camps this month, with 41% of respondents describing themselves as bullish, 37% as bearish, and 20% as neutral on asset prices. This is a significant moderation in enthusiasm since last month’s survey, when 54% of those polled described themselves as bullish. Despite this dip in sentiment, fewer clients now expect a 2020 recession (down to 26% this month from 37%).
Skewing Positive on Trade: Despite the lack of visible progress on US-China trade negotiations, the vast majority of investors expect either a deal (46%) or continuation of the status quo (39%) by end of March in 2020. Only 10% expect an escalation in tensions, and just 2% expect a complete end to the trade war (removal of all tariffs) by this date.
Brexit and Beyond: All eyes are on UK politics this month as 41% of those surveyed reported the UK general election as the event they are most focused on in December. Participants generally expect a constructive outcome, with 43% expecting the pound to trade higher. Approximately half of the sterling bulls expect this to be short term move, while the other half see this playing out over a longer time period.
Above (L to R): Asahi Pompey of Goldman Sachs and Wes Moore of Robin Hood
Growing up in the South Bronx with a widowed mother holding down three jobs to support her three children, Wes Moore saw firsthand how cycles of poverty can work against families battling to escape it. “There’s this narrative that people who are working hard and struggling...should work harder,” he said during a recent episode of Talks at GS. “You weren’t going to outwork my mom. She was already working three times as hard as anyone else around her.” That personal understanding of poverty now informs Moore's work as CEO of Robin Hood, one of the largest antipoverty organizations in the U.S. “People ask me, ‘What do we have to? What do we have to double down in and invest in? Tell me what it is, and I'll do it. Is it education? Is it housing? Is it health, immigration, food?' And the thing about poverty is the answer is, ‘Yes, that's exactly right.’ It's all of it, because poverty doesn't show itself in one way. It shows itself in every single possible imaginable way you can think of,” he said. “And so the only way to be able to attack it is with every tool and every mechanism that we have. It's about understanding the fact that our philanthropy is going to be important, but our philanthropy is never going to be enough.”