Goldman Sachs and S&P Global predict strong market and corporate activity in 2024

International financial specialists Goldman Sachs and S&P Global have forecast strong share market and corporate action for 2024, including significant initial public offering (IPO) interest.

While some market watchers have expressed concern over the direction of global markets next year, with some even forecasting recessions, Goldman Sachs and S&P are predicting positive financial growth.

American multinational investment bank and financial services company Goldman Sachs recently noted in its “briefings” that the outlook for dealmaking, IPOs and corporate and investor activity is expected to improve in 2024, despite the challenging global economy and geopolitical landscape.

Jim Esposito, Dan Dees, and Ashok Varadhan, the co-heads of Goldman Sachs’ Global Banking & Markets business, say the market for IPOs, which started to pick up in recent months, should accelerate in the back half of 2024, especially if the US Federal Reserve starts cutting rates next year.

“When you step back even further, I think the environment for capital raising will be very robust because it has to be in the years ahead,” Mr Dees said.

“We are in the age of innovation, of accelerating innovation. All that innovation needs to be funded.”

M&A activity to increase

Goldman Sachs is also bullish on the strength of the merger and acquisition (M&A) sector heading into 2024.

Mr Esposito suggested that, while private equity’s deal-making velocity is expected to slow with the rise in interest rates, companies are starting to step up their strategic activity.

“I think corporates in some places were getting priced out of the market and I do expect to see corporates starting to step in and fill the void,” he said.

“We do expect to see a reasonable pickup in deal-making activity, especially now that we seem to be through the other side of this interest rate hiking cycle.”

Goldman Sachs’ view is supported by S&P Global.

S&P’s big picture

S&P Global’s “2024 Big Picture Outlook” predicts M&A activity in various sectors will increase.

However, it also believes large deals will continue to face hurdles, especially in the US where antitrust concerns have been a focus of regulators.

While rates are expected to stay higher for longer, an end to the Federal Reserve’s hiking cycle would improve the outlook for M&A in the US.

A steady rate environment, as opposed to a rising one, would support a gradual increase in deal-making.

However, Mr Varadhan argues that what’s different with the current market cycle is the long-term debt dynamic.

Long-term yields have risen at a time when some buyers for that debt are pulling back.

“It’s hard to see long-term rates coming down meaningfully. Our base case on the trading desk is we expect a more normalised yield curve, a steeper yield curve, but really more with normalised and lower rates in the front end and not a lot of relief in the back end.”

US stocks are forecast by Goldman Sachs Research to have a modest return next year, as above-consensus economic growth is partly offset by high valuations.

Broader US market tipped to rise

US stocks are forecast by Goldman Sachs Research to have a modest return next year, as above-consensus economic growth is partly offset by high valuations.

The S&P 500 index is expected to rise to 4,700 by the end of 2024, representing a price gain of about 5% and a total return of around 6% including dividends.

Cash, with a 5% risk-free return, remains a competitive alternative to stocks. Three-month Treasury bills yield around 5.5%, similar to the earnings yield of the S&P 500 index.

Investment opportunities improving

Goldman Sachs analysts think there may be investment opportunities beneath the surface.

They suggest “quality” stocks – those with higher profitability, stronger balance sheets, and stable sales and earnings growth – could outperform in an environment of persistent investor concern about an impending recession.

Growth stocks, which have a higher expected growth rate than the rest of the market, may be attractive given stable economic growth and interest rates.

Lagging cyclical stocks that are sensitive to a downturn may rally, given our economists’ prediction that recession risk is lower than feared.

While US stocks may struggle to beat cash, Goldman Sachs Research sees the Japanese equity market having a transformational year in 2024, boosted by solid global economic growth and stock market reforms.

A key part of the Goldman Sachs analysts’ forecast is the Tokyo Stock Exchange’s corporate governance reforms, which they suggest “have been a game changer for the Japanese equities market.”

New technology tools could be especially valuable for businesses and industries that are performing well but below potential.

But, as the Goldman Sachs report suggests, “cautionary tales abound of companies that spent heavily on technology without reaping the full benefits due to organisational frictions.”