US Economy Is a Safer Bet Than ‘Dire’ Europe, Goldman Strategists Say

[Hydrogen]

(Bloomberg) -- US firms that do most of their business at home will fare better than those exposed to Europe, where a recession is all but guaranteed, according to Goldman Sachs Group Inc. strategists.

A Goldman team led by David Kostin say that while the path of US growth may be “uncertain,” the economic situation in Europe is dire.

“Despite concerns that investors have about the US equity market, we believe it offers greater absolute and risk-adjusted return potential than recession-plagued European markets,” they wrote in a note.

Goldman’s preference for US exposure comes during what is turning out to be a particularly tough year for business in Europe amid a gas crisis, soaring inflation and tightening central-bank policy. In dollar terms, the Stoxx Europe 600 has lagged the S&P 500 this year and a Goldman basket of US firms with 100% domestic sales has outperformed one tracking those with high sales to Europe.

The strategy is one of four that Kostin’s team has identified to drive equity performance through the end of the year, the others being stocks with high quality fundamentals, so-called value shares, and big dividend payers.

“Investors concerned about economic contraction should own dividends -- either via futures or through individual stocks,” the strategists wrote. “Dividends offer investors exposure to S&P 500 fundamental growth while minimizing exposure to equity valuation risk.”

Kostin and his team are keen on quality stocks that score highly on metrics including strong balance sheets as well as stable sales and earnings growth. They expect the S&P 500 to end 2022 at 4,300 points, or 5.7% higher than Friday’s close, assuming Federal Reserve tightening leads to a continued deceleration in US economic growth.

Mirroring Goldman’s preference for cheaper stocks, Barclays Plc strategists including Matthew Joyce turned overweight on value stocks in Europe on Monday, saying that higher-for-longer rates aren’t yet reflected in value and growth.



https://finance.yahoo.com/news/us-economy-safer-bet-dire-082748483.html

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It sounds as if analysts are labeling the european economy DOA (dead on arrival). While admitting there might yet be hope for the US economy.

I can't imagine europeans will be overjoyed about this. But what can be done about it. The short term outlook is one of reduced productivity and spending. Market efficiency will decline. Leading to a more costly process for producing goods and services for the average consumer. All of these negative trends can be addressed and improved over time. But not with the same mentality and mental state that led to these issues developing initially.

It is possible that the US economy should also be considered DOA. While america has silicon valley and many of the biggest, most wealthy and powerful corporations in the world. That won't necessarily be enough to save the country from a global downtrend.

Interestingly enough finance google appears to recommend dividend based investments. Perhaps going as far as DRIP (dividend reinvestment plans).

Does anyone have any other good ideas for fixing the global economy? Now would be a great time to voice them. Before the situation deteriorates in a way that might further limit our options.

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[jackg]

I think the US economy is growing because of speculators more than anything. Most companies in the US seem to be trying to aim for global reach while a lot in Europe are more interested in more local endeavours imo.

There's some larger tech firms in Europe though (like Spotify) but they seem to be more focused on one or two ideas than trying to invest in everything and grow monopolies.

I doubt the US has a tesco and a Co op which essentially tried to become monopolies imo (but failed  ecause they were competing with each other and caused extra competition from companies focused on their one or two companies).

Europe has banned the use of or run itself dry of the limited natural resources it already had.

Also, if you're looking to make an investment, you're likely competing against France and the Netherlands for stocks (they buy a lot of their own utilities and infrastructure and, in doing so, also buy their neighbouring countries infrastructure too - to not invest in and downgrade to service their own).

Companies that would be ibvestible seem too big and too risky. BP and Shell have business models that haven't been profitible for most of their lives. They've been extracting oil at a rate close to at cost for a moment like this when energy rates go high. They're also big and haven't been split up in a long time.


Rapid growth, stable growth and stability are different things, there'll be better places to invest than the US if you're not investing trillions of dollars.

As is often said here - there's almost a whole world outside of Europe and the US. That's only 1/7th of the population.

[dothebeats]

In the short term, yes, US is your golden pick if you are an investor/speculator. Lots of currencies around the world is weak against the dollar. The US can actually take advantage of this now and get whatever raw materials and other stuff that they need abroad and be a major manufacturer of goods just like what China is doing. But the US government has its own plans is invested in something else (Ukraine and Taiwan). Europe on the other hand already has the materials, the resources, the manpower, and the equipment to bounce back and get out there in the world stage. It's just that they are trying to be conservative on what they had and are expecting for a worse short-term situation for their own. They are still growing, though not at a rate in which the US is, and IMO that is not bad if it wants to be sustainable and solid in the long-term.

[NeuroticFish]

I think the US economy is growing because of speculators more than anything.

I tend to agree with this. The situation in EU is far from great, but it may not be as bad as some expect.

EU has made huge and costly mistakes related to energy and especially the Russian gas, which makes some things very difficult. But they're going to the right direction now, from what I see.
Somehow the war seems to be too close, but I still hope we'll not get to WW3. That would be awful for Europe, but will be worse than the expectations also for US.
So again, EU doesn't seem to be as bad as the worse expectations and some may prefer the risky bet on Europe, which may give better rewards on medium term.

Of course, a company from US (Goldman Sachs) will favor US  



I will add a nice and somewhat related meme:

[Darker45]

It's understandable because Europe for now is a place of chaos. Putin's decision to wage war and invade Ukraine has sent a huge economic shockwave to the rest of an otherwise peaceful region. As a matter of fact, the damaging effects of Russia's attempt to occupy Ukraine has reached all throughout the world. Naturally, as a result, investors and speculators would go somewhere else where uncertainty is not as high as Europe's. The US seems to be a good option.

However, it seems the end is now in sight as far as the invasion is concerned. The attempt is now more apparent than ever that it has failed and it's just a matter of time before giving up is the only option left. So hopefully the crisis in Europe will soon end and rebuilding will commence.

[stompix]

I think the US economy is growing because of speculators more than anything. Most companies in the US seem to be trying to aim for global reach while a lot in Europe are more interested in more local endeavours imo.
There's some larger tech firms in Europe though (like Spotify) but they seem to be more focused on one or two ideas than trying to invest in everything and grow monopolies.

There are others, far more important that some music providers that hold monopolies in important sectors worldwide
ASML Holding, basically holds complete monopoly over  lithography equipment
Arm, despite being bought by Softbank it's still a British-based company listed on FSTE
Those two stop dealing with you and any country is sent back to 90s technology.

As is often said here - there's almost a whole world outside of Europe and the US. That's only 1/7th of the population.

There might be a world with 6/7 of the population but with 1/7 of the money.

I tend to agree with this. The situation in EU is far from great, but it may not be as bad as some expect.

No way, you mean we won't freeze to death, then be reborn as zombies to starve to death only to revive again do drive carts with horses and rely on food help from India and Iran as some armchair generals and macro-economics specialists are saying around here? Wow, just wow!

[davis196]

The US economy is in a better shape than the European economy because:
1.USA produces it's own oil and natural gas, while Europe has to import oil and gas from Russia.
2.The Federal Reserve increased the interest rates, while the European Central bank is acting too late and the interest rate hikes are too small.
3.The Italian government debt is a ticking time bomb. USA has the biggest government debt, but no creditor in the world would want the USA to go bankrupt.
Anyway, the upcoming recession is going to be global, so it doesn't matter which country will be a "safer bet". All countries are going to face the consequences in one way or another.

[Wind_FURY]

OP, that's just another piece of dirty propaganda/misinformation made by no one else but a U.S. legacy financial entity. The U.S. government clowns also redefined what an actual recession is. Two quarters of negative GDP is not a recession? During October, it will be THREE quarters of negative GDP.



Plus the FED has increased its balance sheet by almost 10x since 2008, and the people/country are currently suffering because of that.

[Lucius]

I have the feeling that a lot of people want Europe to sink even lower, and that the war in Ukraine will last at least another year, but maybe it just seems that way to me as a mere observer who still feels the consequences of everything on his skin. Maybe I've lived through some much worse things than inflation and recession, so all this seems to me like too much scaring people and causing panic. The situation is not at all harmless, but it is not exactly the end of the world, regardless of the craziness coming from the east, where the open threats of nuclear war come from - even though such a war means the destruction of all of Europe and the US.

However, there is also good news from the guys from GS, because if we believe their analysis, gas prices will be halved and despite all the announcements that the EU will turn into a big ice sheet filled with penguins, none of that will happen.

European countries can withstand Russia’s gas cuts this winter as supply headaches may have been “successfully solved”, according to analysis by a leading US bank.
Goldman Sachs said the price of gas was likely to more than halve this winter as efforts by EU countries’ to avoid big shortages this winter prove effective.
Goldman said on Tuesday it expected European wholesale natural gas prices to fall from about €215 (£186) a megawatt hour to below €100 a MWh by the end of the first quarter of next year, assuming typical winter weather conditions. That is well below the €213 previously predicted.

[NeuroticFish]

No way, you mean we won't freeze to death, then be reborn as zombies to starve to death only to revive again do dive carts with horses and rely on food help from India and Iran as some armchair generals and macro-economics specialists are saying around here? Wow, just wow!

I was thinking more about honest people's expectations, not what propaganda tells. But I give you that, you do have a point, I was not clear enough

[lumbanrang]

I think that the economic condition in Europe is a bit down for now due to the impact of the energy crisis, the Ukraine war, and post-covid, but I don't think it's that much of a concern because we can see that Europe is a continent with a developed economy and it just takes time to recover. So there is no need to exaggerate the condition of the European economy by calling it "dire".

[stompix]

I have the feeling that a lot of people want Europe to sink even lower, and that the war in Ukraine will last at least another year, but maybe it just seems that way to me as a mere observer who still feels the consequences of everything on his skin.

The typical mentality of the one envious of Europe, if they are feeling it's too hard to catch up with it and it involves work so it's way better to just pray every day that Europe and the US sink to their levels and then they can be happy in their shithole as the whole world will be a shithole.

Maybe I've lived through some much worse things than inflation and recession, so all this seems to me like too much scaring people and causing panic.

It's just funny how some people in counties where inflation is 80% , 50% are saying Europe is doomed because inflation is at 10%, they are not sued to this, bla bla, in the 90% we had inflation of over 100%, I don't remember which one was hit hardest but at some point one of the former eastern block went over 200%. We went through 2009-2013 when Europe was supposed to disintegrate, we went through Covid when we were going to be eradicated, f! shit, we're talking about a continent full of people who slaughtered eachanother for millennia and razed cities after cities from the surface of the death and it's still there and some think that a 40% reduction in gas imports will send us to the Ice age!

However, there is also good news from the guys from GS, because if we believe their analysis, gas prices will be halved and despite all the announcements that the EU will turn into a big ice sheet filled with penguins, none of that will happen.

Yeah, it's a bit too late for that but maybe it would have saved GoT producers a lot of money to film all the scenes from Winterfell in Dubrovnik too, right? Dunno about penguins but you do have a few mammoths migrating there from the artic during winter each year, right? 

[pooya87]

The thing about propaganda is that they always contain some truth, otherwise they won't work. Take the propaganda against bitcoin. They always tell that criminals use bitcoin, that's a truth but they don't tell you that the percentage of them is so small that it is negligible compared to everyone else that is using bitcoin or even compared to the percentage using fiat! Same with the recent energy propaganda.

This is the same too. At this point they can't hide the fact that Europe's economy is a lot worse than the same propaganda was telling you, so they start talking about part of the truth. Then they inject their own lies into it that US economy is "fine" whereas it is in a terrible shape itself even if it is not as worse as EU's.
We saw this in early days of the war when the European politicians kept telling people that the economy abnd food situation is a lot worse in Africa while ignoring the fact that their own situation was also bad even if it weren't as bad as Africa! Now they are facing a cost of living crisis...

In the end, the combination of recession and inflation in United States is going to have "dire" consequences for their economy whether they are admitting it right now or not.

[Wind_FURY]

I have the feeling that a lot of people want Europe to sink even lower,

Why? No one wants that, unless you're Putin.

and that the war in Ukraine will last at least another year, but maybe it just seems that way to me as a mere observer who still feels the consequences of everything on his skin.

I believe it will be more than that, and Russia is preparing for a more expansive war. The Russian government has approved a "partial mobilization". They did that during the Russia-Japan war, which was one of the forerunners to World War I. Tin-Foil hats on.

Maybe I've lived through some much worse things than inflation and recession, so all this seems to me like too much scaring people and causing panic. The situation is not at all harmless, but it is not exactly the end of the world, regardless of the craziness coming from the east, where the open threats of nuclear war come from - even though such a war means the destruction of all of Europe and the US.

My only hope is, NO nuclear weapons.

[be.open]

I have the feeling that a lot of people want Europe to sink even lower,

Why? No one wants that, unless you're Putin.

Do not be fooled, the collapse of Europe is being implemented according to the US plan. For the US, this is the only chance to alleviate its own economic crisis, and for this, Europe must be sacrificed. For Russia, breaking economic ties with the European Union is almost as painful as for Europe.

ps If anyone has any doubts about this, listen to US Secretary of the Treasury Janet Yellen at the Atlantic Festival yesterday.

[el kaka22]

There is a slight bit of truth in this for Europeans to take a look at. I mean if we are talking about a situation where it's clear that people are not making any big changes in Europe, then it's going to stay the same and that's their trouble. USA at least increases the rates to a good level where it would help dropping the inflation, if you do not increase the rates carefully, then you are going to have high inflation that won't stop.

Euro needs some sort of 3-4% rate as well, not 1% and this is why it looks like US economy looks like a safer bet to me as well. This is not a guarantee of course, but there is a good chance. Do not get me started on the gas prices as well, it's a lot worse for Europe.

[Flexystar]

Looking at wind fury’s graph the story seems to be bit off the records. There are more than 8-10 trillion combined liabilities of FED and still we think US economy is going Safe? I’m sure if we hit by another kinda pandemic situation then US is gonna be zombie land with no one left to print the money. Though data suggest the earnings per house in the US is higher than the 2022 yet it’s hard to believe why we are in inflationary stage and why they are rising the interest rates throughout the world?

[Gyfts]

The global economy is dependent on the larger economies and their stability. So U.S.A, EU, and China are all the major players. Other economies don't matter as much. EU has an energy crisis that needs to be solved, and the U.S.A has had one of the worst days in the stock market since Joe Biden took office: https://www.cnbc.com/2022/09/22/futures-inch-higher-following-another-day-of-losses-after-fed-rate-hike-sell-offs.html

Yep, federal interest rates rise, wall street detects sharks in the waters, and you have the worst closing in 2022, and the lowest of the Biden administration.

Unfortunately it's bad government policy that's leading to the decline of the greatest economies we've ever seen.  Self inflicted, all of it. I don't know if I see any solutions.