Goldman Sachs is optimistic about the potential of artificial intelligence (AI) to increase productivity and profits for the S&P 500 in the next 10 years. According to Ben Snider, senior strategist at Goldman Sachs, AI could raise productivity by 1.5% each year, resulting in a 30% increase in S&P 500 profits or more over the next decade. This has sparked interest among investors, who are looking for new drivers of profit growth amidst rising borrowing costs and supply chain issues.
Technology Sector Seen as Immediate Winner
Snider highlighted the technology sector as the immediate winner in the AI race, but investors are also looking for long-term winners. Snider pointed out that during the tech bubble of 1999-2000, it was difficult to predict the impact of Facebook and Uber on our lives. He recommended that investors spread their investments to cyclical and defensive sectors in the US equity market, especially the energy and healthcare sectors, which have attractive valuations.
Concerns over Interest Rates and Corporate Spending
Snider also expressed concerns about the impact of high interest rates on corporate spending. Companies may be less likely to issue debt and may pull back on their spending, which could affect S&P 500 buybacks. In the first quarter of 2019, S&P 500 buybacks were down by 20% year-over-year, which indicates that the effects of the tightening cycle may not have fully materialized.
US Federal Reserve Expected to Complete Monetary Policy Tightening
While Snider expects the US Federal Reserve to complete most of its monetary policy tightening in the short term, he is unsure how this will affect the economy moving forward. He stressed the importance of monitoring the situation and advised investors to be cautious in their investments.