Goldman Sachs Maintains Bullish Outlook on US Equity Exposure

Investing.com — U.S. equity exposure remains robust despite recent market fluctuations, according to a report from Goldman Sachs released on Wednesday.

Specifically, the financial services firm highlights that although global markets underwent a “risk-off” phase in early August, U.S. equities have demonstrated notable resilience. Positioning in U.S. equities not only remained stable but has actually increased since summer, even as other asset classes such as bonds, gold, and the yen drew more significant inflows during periods of uncertainty.

The outperformance of the U.S. stock market, largely attributable to the strength of technology stocks and the so-called “Magnificent 7,” has played a significant role in this positive positioning.

Goldman strategists report that “flows into U.S. equities are tracking at the upper end of the range since 2013,” only eclipsed by the exceptional inflows seen in 2021. In contrast, European and emerging market equities continue to underperform, hindered by structural challenges and slower economic growth, particularly in China.

The U.S. technology sector has been a major beneficiary of this optimism, with substantial inflows over the past year directed toward technology funds, likely spurred by increasing excitement around artificial intelligence.

Despite some summer volatility, positioning in S&P 500 futures remains near record highs, with “little evidence of de-risking.” However, the report notes that positioning in Nasdaq futures has seen a greater decline.

Goldman Sachs also warns that although U.S. equity exposure is strong, forthcoming events like the U.S. elections and possible corporate tax reforms could influence investor sentiment.

“Our U.S. equity strategy team has indicated that U.S. corporate tax reform could potentially reduce S&P 500 earnings per share (EPS) by up to 8%. Additionally, heightened scrutiny of AI capital expenditures might negatively affect U.S. equities,” the strategists commented.

“Only if AI manages to bolster the structural growth/inflation balance and enhance corporate profitability are S&P 500 returns in the coming decade likely to be above average.”

Meanwhile, the strategists noted that China’s stimulus measures and global interest rate cuts could temporarily provide support to non-U.S. equities. However, global allocations to non-U.S. equities, particularly in China, have decreased. Goldman maintains a neutral stance across regions while advocating for international diversification as year-end approaches.