- GS says US GDP growth will likely peak this quarter and decelerate for the rest of the year.
- It sees growth remaining above consensus estimates and trend, which can delay a shift to defensives.
- Meantime, global growth continues accelerating, which benefits stocks that follow economic trends.
- See more stories on Insider’s business page.
US GDP growth is likely to peak this quarter and decelerate throughout the rest of the year as fiscal stimulus and economic reopening tailwinds reach their maximum impact and begin to dwindle away, according to Ben Snider, a strategist at Goldman Sachs.
While many nations in the world suffered heavy economic losses and struggled to kick-start activity after the coronavirus triggered a global economic downturn, the US was able to grow robustly from the beatdown. In the third quarter of 2020, US GDP grew at an annualized rate of 33.1% thanks in large part to businesses reopening and an increase in consumer spending.
“Although our economists believe the pace of US economic growth will peak in the next month or two, their 2Q forecasts for economic growth remain substantially above consensus estimates,” Snider wrote in a note to clients on Wednesday.
“In addition, they expect core PCE inflation will temporarily surge above the Fed’s 2% target. Both of these catalysts should benefit cyclical stocks.
The bank’s economists expect US growth to come in at 10.5% in the second quarter, which is the second-fastest quarterly growth rate since 1978. On top of that, their 7% GDP growth forecast for the second half of the year would still be above trend and consensus estimates, Snider said.
Usually, in an environment that has positive and accelerating economic growth, the cyclical areas of the market do the best as they tend to follow economic trends. But afterward, when growth first starts to peak and decelerate, more defensive industries tend to outperform, he added.
Still, the rotation from cyclicals to defensives might be delayed this time around. That’s because of strong growth expectations despite broad deceleration, economic data releases in coming weeks, and the conviction that global economic growth still hasn’t reached its peak, he said.
“Rapid vaccine distribution and exceptional fiscal stimulus have helped the US economy accelerate more quickly than most other economies around the world. Our economists expect non-US global growth will peak in 3Q 2021, coinciding with the peak growth rates in Europe, Japan, and EM ex. China, among other economies,” he added.
That bodes well for many cyclical pockets of the market, as many cyclical US equity industries follow both US and non-US economic trends. That means that the headwind of growth deceleration in the US could partly be canceled out by the acceleration of global growth, he added.
Furthermore, some industries within information technology, financials, communications services, and consumer discretionary outperformed the S&P 500 in periods where US economic growth was likely declining and non-US global growth was accelerating since 1998, he said.
He noted that in the past few weeks, “global-facing” cyclical stocks have started to outperform their US-facing counterparts, and that’s something that he expects will continue for months.
That being said, Snider named 45 S&P 500 stocks from cyclical industry groups with the highest foreign exposures to revenue. They are listed below in no particular order. We have included their corresponding tickers, market caps, industry groups, and the percentage of their revenues that did not come from the US as of 2019.