Podcast Summary

Podcast: Exchanges by Goldman Sachs
Episode: Equity risks and alts opportunities
Date: May 13, 2025
Host: Alison Nathan
Guests: David Kostin (Chief US Equity Strategist, Goldman Sachs Research), Patti Raphael (Global Co-head of Third Party Wealth Management, Goldman Sachs Asset Management)

Main Theme

This episode examines the US equity market's rapid recovery following the shocks of new tariffs, discusses portfolio strategies in the face of ongoing uncertainty, and explores the appeal of alternative and private markets. It draws on fresh insights from the recent RIA Professional Investor Forum and reflects on how investment sentiment is evolving among independent advisors and global clients.

Key Discussion Points & Insights

1. US Equity Market Recovery and Tariff Uncertainty

• Tariff Shock and Market Rally:
  • The announcement of high US tariffs (“Liberation Day”, April 2) caused market distress and recession fears.
  • A one-week-later delay (April 9) in implementation provided relief, leading to a market rebound.
  • “The equity market has had a tremendous rally and is currently pricing in...an optimistic outcome.”
    — David Kostin, [01:05]
• Current Valuations and Recession Odds:
  • S&P 500 trades at high forward P/E multiples (20-21x) despite historical probabilities (~50/50) of recession.
  • This suggests investors largely don’t expect a US recession in 2025.
• Earnings Strength (Q1) vs. Future Risks (Q2):
  • Q1 earnings notably outperformed (actual: +12% YoY vs. expected +6%).
  • These results are backwards-looking; tariff impacts will show in Q2.
  • “There are certainly greater risks in the second quarter results...a lot of concern.”
    — David Kostin, [03:55]

2. Investor Sentiment from RIA Forum & Market Engagement

• RIA Advisor Mindset:
  • Advisors and clients aren’t paralyzed by uncertainty; they are highly engaged and actively seeking solutions.
  • Increased interest in products harnessing volatility and short-term dislocations for long-term benefit.
• Product Innovation:
  • Growing variety of investment products designed to perform in both rising and falling markets.
  • “There are an increasing range of products...that really offer different ways to capitalize on market movements.”
    — Patti Raphael, [05:31]

3. US Exceptionalism and Shifts in Global Investment Preference

• Is There a Loss of US Investment Appeal?
  • US investors remain committed to US markets but are looking more at European equities.
  • European investors are slowly reallocating towards home markets.
  • Asian investors still value US companies and “US exceptionalism.”
• Valuation & Relative Attractiveness:
  • US offers higher growth/return on equity but now with headwinds from a weaker dollar and high valuations.
  • PEG ratios (P/E to growth) normalize US advantage.
  • “From a risk-adjusted perspective, the US is not as exceptional as it was...money is being viewed as perhaps interesting opportunities abroad.”
    — David Kostin, [09:01]

4. Portfolio Strategy: Diversification and Risk Management

• Broadening Within US & Global Equities:
  • Goldman Sachs strategy team advocates for diversification, e.g., equal weight indices, and looking at non-US markets for better risk-adjusted returns.
  • “Opportunity sets globally in other equity markets [are] somewhat more attractive than the US.” — David Kostin, [11:11]
• Concentrated Stock Risk for Individuals:
  • Many clients have single-stock exposures (>25% of their portfolio) often for emotional reasons.
  • Historical data: Median single stock returns since 1992 are just 2%, with high drawdown and recovery risk; compared to a broad index ETF/mutual fund, these pose significant risks.
  • “Holding a single stock position is a coin toss relative to...a diversified portfolio.”
    — Patti Raphael, [13:07]

5. Growth in Private Markets and Alternative Assets

• Rising Client Demand:
  • Private equity and credit are increasingly accessible to individual (especially high net worth) investors.
  • “Private markets is definitely coming into the sunlight...huge amount of interest.”
    — Patti Raphael, [12:03]
• Institutionalization of Retail Access:
  • The gap between institutional and individual investor access is shrinking, with more opportunities for sophisticated retail investors.

6. Outlook and Risk Spectrum

• Base Case (No Recession):
  • S&P 500 to trend higher; earnings growth, albeit weak, should support further gains.
  • “Our baseline forecast has the economy growing...earnings are growing.”
    — David Kostin, [15:30]
• Downside/Recession Scenario:
  • Earnings may drop ~10%, with S&P possibly falling to around 4,600.
  • The market currently prices in the optimistic scenario, but risks—especially from renewed tariffs—are wide.
  • “There’s a wide distribution of the risks...market’s pricing the more optimistic scenario.”
    — David Kostin, [17:10]

Notable Quotes & Memorable Moments

• On Market Recovery Post-Tariffs:
  • “The market quickly pivoted to the idea there’s a really dire outcome...and the surprise that happened a week later...gave portfolio managers confidence that the off-ramp was there.”
    — David Kostin, [01:05]
• On Client Engagement:
  • “Sentiment right now...is I would say still pretty uncertain, but super engaged. So the clients aren’t shying away from the uncertainty. They’re not paralyzed by fear.”
    — Patti Raphael, [05:31]
• On Single Stock Risk for Individuals:
  • “History guides that holding a single stock position is a coin toss relative to a broad based index exposure, diversified portfolio...”
    — Patti Raphael, [13:07]
• On Outlook for S&P 500:
  • “Our baseline forecast has the economy growing...earnings are growing. The investor community will be more focused on the growth into next year...”
    — David Kostin, [15:30]
• On Downside Risks:
  • “In a downside scenario, earnings could fall by around 10%...”
    — David Kostin, [16:11]

Timestamps for Key Segments

• Introduction & Context: [00:00–00:48]
• Market Response to Tariffs & Earnings: [00:48–03:55]
• Investor Sentiment at RIA Forum: [05:17–07:14]
• US Exceptionalism and Global Flows: [07:14–11:47]
• Private Markets: Retail and Institutional Access: [11:47–12:55]
• Single Stock Risks & Diversification: [13:07–15:06]
• Market Outlook: Upside & Downside Scenarios: [15:06–17:10]

Conclusion

This episode delivers a nuanced snapshot of investor sentiment amid ongoing geopolitical and policy risk, with both optimism and caution in play. Strategists encourage diversification, warn against overconcentration, and note the growing democratization of private market opportunities. The spectrum of outcomes remains wide—with a market pricing in hope, but mindful of lurking downside if trade tensions escalate.