goldman sachs_marketpulse_special edition_ten for 2013

7/29/2019 Goldman Sachs_MarketPulse_Special Edition_Ten for 2013

1/3FOR FINANCIAL INTERMEDIARIES USE ONLY NOT FOR USE AND/OR DISTRIBUTION TO THE GENERAL PUBLIC

-1.1% -1.1% -1.7%2.4%

5.7%1.4% 0.6%

11.9%3.4%

1.4%

-5%

0%

5%

10%

15%

20%

S&P 500 High Yield Investment Grade 5-year UST

Rates Yield Risk/Pr

5% P/EExpansion

TEN FOR 2013: PERSPECTIVES FROM GOLDMAN SACHS GLOBAL INVESTMENT RESEARCH

Key Forecasts (Annualized %)

Special Edition | Ten For 2013

2013-2016 US Economic Forecast1

) Growth1,2We expect below-trend annual growth of 2.0% in 2013, and an acceleration to 2.9%in 2014. Our forecast for near-term weakness but long-term strength is based oncompeting impulses from the private and the public sector. While we expect thefiscal cliff to be averted, we nevertheless forecast a step-up in the pace of fiscalretrenchment to outweigh the ongoing healing in the private sector. In the long-term,we see further strength in the private sector, led by the ongoing housing recovery,rising business investment, and financial rebalancing in the household sector.

) Employment1

Data from the labor market continues to suggest that most of the unemployment wesee is cyclical rather than structural. By our estimates, employment is about 4%below its potential level, and the unemployment rate will fall only slowly as moreworkers rejoin the labor force. This is likely to keep wage growth very subdued.

) Inflation1Despite the Feds easy monetary policy, we continue to see an environment of ample

spare capacity and wage containment that keeps the inflation picture benign. Weexpect inflation to remain slightly below the Feds 2.0% target.

) Federal Reserve Policy 1With high unemployment and limited inflation, accommodative policy should continuefor the foreseeable future, including purchases of MBS and longer-term Treasuries ofaround $85 billion/month and a move to outcome-based forward guidance.

) Housing6

The upside surprises in both homebuilding and home prices have been large andpersistent. The depressed level of housing starts has eliminated a significant share ofthe excess supply, and the normalization of household formation now underwayforeshadows substantial further gains in homebuilding.

) Energy 3,7,8

The shale revolution is changing the global energy landscape, gradually looseningthe oil price constraint that has previously risked choking off global recovery. Benefitsfrom the structural stabilization of the energy market include: 1) backwardated curvesthat improve the carry from owning oil indices, 2) comparative advantage for energy-centric manufacturing, and 3) economic gains from energy independence, jobcreation, and current account improvement.

) S&P 5004,5

We recommend pro-risk allocations with an overweight to equities given our 2013S&P 500 target of 1575. We expect 2013 top-down EPS of $107 and P/E multipleexpansion to 13.8X from 13.3X. There are policy risks of being early, however, theserisks should be viewed as temporary.

) Interest Rates and Credit9,10

We anticipate steeper curves in major government bond markets in 2013 with the 10-

year Treasury ending the year at 2.20%. In spread sectors, we expect modestspread tightening and a limited default environment with high yield defaults edging upto 3.8% in 2013. We see re-leveraging as a top risk.

) Currency11

Assuming no rise in risk aversion and strict inflation targeting by global central banks,we see a period of USD weakness, EUR rebound, and solid EM FX results. Over thelong-term, our expectation for Dollar weakness is supported by persistently large twindeficits and the easy monetary policy stance of the Fed.

0) Commodities3

While tempting to declare the end of the commodity supercycle, long-term stabilitydoes not prevent near-term shortages. As the economy improves into 2H2013, weexpect positive carry to emerge as a meaningful contributor to investment returnsdespite our view for more stable longterm prices. Gold should reach a cyclical peakin 2013 as an improving growth recovery outweighs Fed balance sheet expansion.

his material has been prepared by GSAM. We have leveraged the research insights of Goldman Sachs Global Investment Research in preparing the material provided below. The views and opinions expressed below aews of Global Investment Research. GSAMs (or other departments or divisions of Goldman Sachs and its affiliates) views and opinions may differ from those expressed below. Investors are urged to consult with thenancial advisors before buying or selling any securities. This information may not be current and GSAM has no obligation to provide any updates or changes. This information discusses general market activity, industry ector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. Please see additional disclosures.

2011 2012 F2013 F2014

Real GDP Growth1 1.8% 2.3(f) 2.0% 2.9%Unemployment Rate1 8.5% 7.8% 7.6% 7.0%Headline CPI1 3.1% 1.8% 2.2% 1.7%Core CPI1 1.7% 1.9% 1.8% 1.8%Fed Funds Rate1 0.10% 0.10% 0.10% 0.10%2-Year Note Yield1 0.24% 0.25% 0.40% .60%10-Year Note Yield1 1.88% 1.76% 2.20% 2.75%S&P 5004 1258 1426 1575 -WTI Crude Oil 3 $99 $92 $99* 99+Brent Crude Oil 3 $108 $111 $105* 105+Gold3 $1565 $1675 $1800* $1600+Copper3 $7601 $7931 $8000* $7000+Dollar/Euro1 1.30 1.32 1.40 1.40

Yen/Dollar1 77 87 80 80

Source: GS Global ECS Research

2013 Total Return Expectations

Stocks Up, Rates Too


2.0%

2.9%3.2%

3.0%

0%

1%

2%

3%

4%

2013

2014

2015

2016

GDP7.6%

7.0%6.5% 6.2%

0%

2%

4%

6%

8%

2013

2014

2015

2016

Unemployment

2.2%

1.7%2.0% 2.

0.0%

1.0%

2.0%

3.0%

2013

2014

2015

2 0 1 6

Headline CPI

14.4%

7.9%

1.6%-1.1%


1450

15501575

1.9% 2.0%2.2%

0%

1%

2%

3%

4%

5%

1000

1200

1400

1600

1800

Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13

S&P 500 (left axis)10-Year Treasury (right axis)

Forecast

7% EPSGrowth



0

2

4

6

8

10

12

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Yield(%)

S&P 500 Earnings Yield (E/P)

US 10-Year Yield

GOLDMAN SACHS ASSET MANAGEMENT


his material has been prepared by GSAM and is not a product of Goldman Sachs Global Investment Research. The views and opinions expressed may differ from those of Global Investment Research or other departmdivisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and GSAM has no obligation to prov

ny updates or changes. This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investmendvice. Please see additional disclosures.

Source: I/B/E/S, FirstCall, FactSet, GSAM, and Goldman Sachs Globa l ECS Research. As of 11/30/2012.

Rising Dividend Equity

Our positive outlook on equities is based on the expectation that the spread between the S&P 500s earn ings yield (inverse of forward P/E ratio)

and the US 10-Year Treasury yield begins to revert to its 10-year trailing average. We anticipate that the S&P 500 price change closes half the ga

and the remainder closes due to changes in bond yields.

Underweight Duratio

Overweight Equity

Overweight Equity Underweight Duration

Small and Mid Cap Growth

Short Duration Municipals

Unconstrained Fixed Income

Long-term investors should increase core equity exposure

Rising dividends have historically generated better risk-

adjusted returns than high dividend equities or S&P beta

Low downside capture is essential in current macro setting

High yielding and defensive equities appear expensive,

sector concentrated, and exposed to policy r isk

Macro clarity could drive corporate willingness to redeploy

cash; small and midcaps well-positioned for a lift in M&A

Recovering equity markets often benefit styles that have a

high degree of company differentiation but limited coverage

Supportive relative valuation as segment has lagged

Any flow reversal from large cap could amplify results

May de-emphasize duration; potential to be short rate risk

Global market exposure diversifies risk profile and expands

alpha opportunity set

Dynamic risk budgeting evolves with macro and

idiosyncratic events

Potential overlay of top down strategies such as country,

currency, and sector rotation

Low duration limits interest rate sensitivity

Short end of muni curve anchored by current Fed policy

Positive state revenue trends and net negative supply

Attractive tax equivalent yields and comparative ratios

Uncertain tax legislation, though marginal rates likely

moving higher

The potential for yield normalization anchors our strategic view

As the equity earning

yield converges once

again with the 10-Ye

Treasury yield, we

believe investors sho



GENERAL DISCLOSURES

he following disclosures apply to the Goldman Sachs Global Investment Research content found on page 1 of this piece :

he views and opinions expressed are of Goldman Sachs Global Investment Research and is not a product of GSAM. The views expr essed may differ from those of the GSAM or other departm

r divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and Goldmachs Global Investment Research has no obligation to provide any updates or changes.

his information discusses general market activity, industry or sector trends, or other broad -based economic, market or political conditions and should not be construed as research or investme

dvice. The views and opinions expressed under Ten for 2013 Summary are of Goldman Sachs Global Investment Research and is not a product of GSAM. The GSAM and Goldman Sachs G

vestment Research views may differ from each other or other departments or divisions of Goldman Sachs and its affiliates. T his information may not be current and Global Investment Resea

o obligation to provide any updates or changes.

he economic and market forecasts presented herein are provided for informational purposes as of the date o f this presentation. They are based on proprietary models and there can be no ass

at the forecasts will be achieved. Please see additional disclosures at the end of this presentation.

he following disclosures only apply to the Goldman Sachs Asset Management content on page 2 of this piece .

his material has been prepared by GSAM and is not a product of the Goldman Sachs Global Investment Research. The views and opinions expressed may differ from those of the Global

vestment Research or other departments or divisions of Goldman Sachs and its a ffiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. Th

formation may not be current and GSAM has no obligation to provide any updates or changes.

his presentation is provided for educational purposes only and should not be construed as investment advice or an offer to s ell or the solicitation of offers to buy any Goldman Sachs product o

ervice. In the event any of the assumptions used in this presentation do not prove to be true, results are likely to vary substantially from the examples shown herein. The information provided h

hould not be construed as providing any assurance or guarantee as to returns that may be realized in the future from investments in any asset or asset class described herein.

he opinions expressed in this presentation are those various authors, and do not necessarily represent the opinions of Goldman Sachs. The investments and returns discussed in this presenta

o not necessarily represent any Goldman Sachs fund, separate account, or product.

he information contained in this presentation is not intended to be used as a general guide to investing, o r as a source of any specific investment recommendations. This presentation makes n

mplied or express recommendations concerning the manner in which any clients account should or would be handled, as appropriate investment strategies depend upon the clients investmen

bjectives.

his presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific

ient. This information does not represent any Goldman Sachs product.

dices are unmanaged. The figures for the index reflect the reinvestment of all income or dividends, as applicable, but do n ot reflect the deduction of any fees or expenses which would reduce

eturns. Investors cannot invest directly in indices.

he economic and market forecasts presented herein are provided for informational purposes as of the date o f this presentation. They are based on proprietary models and there can be no ass

at the forecasts will be achieved. Please see additional disclosures at the end of this presentation.

pinions expressed are current opinions as of the date appearing in this material only. No part of this material may, without Go ldman Sachs Asset Managements prior written consent, be (i) co

hotocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the recipient.

isk Considerations

pecial risks are inherent in international investing including those related to currency fluctuations and foreign, political, and economic events.

ll investing involves risk. Equity securities are more volatile than bonds and subject to greater risks. Bonds are subject to interest rate, price and credit risks. Prices tend to be inversely affecte

hanges in interest rates. High yield fixed income securities are considered speculative, involve greater risk of default, and tend to be more volatile than investment grade fixed income securitie

vestments in foreign securities entail special risks such as currency, political, economic, and market risks. These risks a re heightened in emerging markets. An investment in real estate secur

ubject to greater price volatility and the special risks associated with direct ownership of real estate. Investments in commodities may be affected by changes in overall market movements,

ommodity index volatility, changes in interest rates or factors affecting a particular industry or commodity. Corporate bonds offer a high yield compared to some other investments, but is subjec

e risk the corporate issuer will default on its debt obligations.

ast performance does not guarantee future results, which may vary. The value o f investments and the income derived from investments will fluctuate and can go down as well as up. A loss of

rincipal may occur.

Source: 2013 and 2014 estimatesUS Economics Analyst" Issue 12/52 December 28, 2012. Under 2012 and 2013 Forecasts, GDP Growth and CPI are expected averages for the entire year. A

other numbers are year-end forecasts.

Source: Global Economics Weekly: Top Trades for 2013" Global Economics, Commodities and Strategy Research December 12, 2012.

Source: The Old Economy Renaissance: 2013-2014 Issues and Outlook" Global Economics, Commodities and Strategy Research December 5, 2012.

Source: GOAL :Adding risk: Upgrading equities to overweight, downgrading cash Global Economics, Commodities and Strategy Research November 30, 2012.

Source: US Weekly Kickstart: Money flow: forecasting the demand for shares and corporate uses of cash in 2013" Global Economics, Commodities and Strategy Research Decem

14, 2012.

Source: US Daily: A Retrospective on 5 Questions for 2012" Global Economics, Commodities and Strategy Research December 11, 2012.

Source: Global Viewpoint: Top Ten Market Th emes for 20 13 Global Economics, Commodities and Strategy Research November 28, 2012.

Source: Global Economics Weekly: The shale revolution and the global economy Global Economics, Commodities and Strategy Research December 5, 2012.

Source: The Credit Line: 2013 HY forecasts: tighter spreads, low defaults Global Economics, Commodities and Strategy Research December 7, 2012.

Source: Fixed Income Monthly: Themes for 2013: Steeper Curves and Seniority Shifts" Global Economics, Commodities and Strategy Research December 7, 2012.

Source: The Global FX Monthly Analyst: Long -term FX Outlook: Fair Value, BoP and Country specifics" Global Economics, Commodities and Strategy Research December 14, 20

2013 price targets for commodities and currencies represent the 12-month forecasts as of December 2012.

2014 price targets for commodities and currencies represent average price during the 2014 calendar year.

2013 Goldman Sachs. All Rights Reserved. Date of First Use: December 21, 2012. 88719.OTHER.OTU SPMKTPULSE 12-12

or More Information: Contact your Goldman Sachs sales representative.

ICG: 800-292-GSAM Bank: 888-444-1151 IAS: 800-559-9778 IAC: 866-473-8637 Corporate Cash: 800-621-2550


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