A Vaccine-Led Recovery

Goldman Sachs Research Optimistic Scenario Validation

• Confirms the earlier optimistic outlook where a safe, highly effective vaccine is approved by year-end 2020 for distribution in 2021.
• Notes current efficacy rates are higher than the most positive predictions made prior to recent news.
• Incorporated this vaccine approval trajectory into the central growth case starting in September 2020.

Market Expectations vs. Reality

• Contrasts Goldman's positive stance with a previously cautious consensus; market probability of year-end approval rose from ~10% in July to ~50% by late October.
• Recent positive data represents a substantial revision relative to prior market expectations.
• Market reaction since early November aligns with Goldman's pre-announced predictions:
  • Equities moved higher, specifically cyclical sectors.
  • Bond yields increased.
  • The US dollar weakened against cyclically sensitive currencies.

Asset Allocation and Sector Opportunities

• While cyclicals are pricing in the recovery, Goldman identifies under-reflective areas for further gains:
  • Commodity-related segments.
  • Emerging market areas.
• Expectations for emerging markets rely on both direct vaccine benefits and indirect growth spillover from developed markets.
• Investors are advised to remain selective to identify sectors less reflective of the optimistic growth view.

Risk Assessment: Timing and Operations

• Time Risk: Market prices a view not validated until Q2 2021; waiting periods may induce volatility if markets lose faith in the ultimate outcome or find new worries.
• Operational Risk: The distribution process involves complex logistics, production scaling, and achieving herd immunity; roadblocks are expected but deemed manageable.
• Investment opportunities may arise if temporary operational concerns cause temporary faith erosion regarding the long-term destination.

Near-Term Headwinds vs. Medium-Term Anchor

• Acknowledges a sharp rise in COVID-19 cases in Europe and the US, leading Goldman to downgrade near-term growth forecasts for both regions.
• Anticipates a period of softer growth for the coming months due to current health deterioration.
• Vaccine news serves as a medium-term anchor, providing a floor for asset market downside despite near-term equity market volatility.
• Emphasizes the necessity of continued policy support to bridge the gap to vaccine-driven recovery expected by mid-to-late spring 2021.

2021 Economic Growth Outlook

• US and Europe: Vaccine adoption is projected to add approximately two percentage points to GDP by the end of 2021.
• China: Impact is positive but smaller relative to other regions due to stronger prior virus control and recovery.
• Growth Trajectory:
  • Expectation of a sharp acceleration in global growth pace starting Q2 2021.
  • The stronger growth picture is viewed as heavily supported by the vaccine timeline for the back half of the year.