Goldman Sachs on Global Markets: Dollar Depreciation, AI Capex, and Equity Outlook

Global Market Dynamics and Equity Rally

• 💡 The current equity rally is described as a global affair with broad participation, underpinned by the expectation that earnings will continue to grow.
• 🚀 Companies are printing favorable earnings despite external uncertainties, driven by dynamics in the consumer and hyperscaler capex related to the AI trade.

Global Growth and Fiscal Expansion

• 📈 Global growth is showing positive progression, with significant investment in hyperscaler capex expected to reach nearly a trillion dollars over the next three years.
• 💰 Fiscal expansion is also noted, particularly in Europe, with Germany shifting from consolidation to expansion, excluding sectors like defense and infrastructure upgrades from fiscal calculations.

Dollar Depreciation and Central Bank Diversification

• ⚠️ Goldman Sachs expects the dollar to depreciate over the next couple of years, with central banks diversifying reserve positions away from the dollar into other currencies and gold.
• 📊 This trend is supported by growth measures outside the US driving normalization, though it doesn't necessarily signal a negative outlook for equities.

US Market Outlook and Valuations

• 📈 US companies, especially larger caps, are demonstrating pricing power to pass on costs to consumers, maintaining healthy margins despite FX trends and tariffs.
• ⚠️ While acknowledging that a 10% pullback in the market over the next 12 months is empirically likely from current levels, valuations are not a primary concern.
• ✅ The market is considered preferable to be long than short, with underlying corporate momentum expected to continue driving the market even without further multiple rerating.