Whenever, Wherever: Seamless Commerce is the Future of Retail
What will retail look like in the post-pandemic economy? According to Jennifer Davis, head of retail investment banking at Goldman Sachs, it won’t be divided into the traditional categories of brick-and-mortar and e-commerce. “You have customers who are expecting a seamless omnichannel experience overall,” she says in the latest episode of Exchanges at Goldman Sachs. “Their journey evolves. It may start online. It may stop in the store. It may, ultimately, end again online.” Meeting customers where they want to be has pushed brick-and-mortar retailers to accelerate their adoption of digital platforms, says Vishaal Rana, also of the Investment Banking Division. “Large retailers that have traditionally been getting to consumers via their store footprint, they’ve been able to figure out a way to have a more seamless shopping experience for their customers,” he says. Meanwhile, Rana adds, previously online-only retailers are adding more physical locations. “A great number of them now have a brick-and-mortar footprint themselves,” he says. “And the reason for that is that these are really efficient customer acquisition vehicles. They’re great marketing.”Listen to podcast
April QuickPoll: Markets Digest Higher Rates as Investors Rotate Into Growth
As markets appear to have largely priced in higher interest rates, investors are rebalancing their portfolios and shifting their focus to some of the worst-hit sectors in the first quarter, according to the latest Marquee QuickPoll survey of 920 institutional investor clients. Here are its highlights:
Investors Still Bullish. The overall sentiment on risk assets continued to be positive, although some underlying softening was noticeable. About 56% of respondents were slightly bullish or bullish in April, down from about 60% last month. Respondents were still about evenly split on whether they’re increasing versus decreasing risk in their portfolios.
Consolidation in Rates. Investors are tempering their view on higher rates with a small (20%) but increasing contingent of bond bulls. The fixed income market seems to be in a range-bound pattern and investors are resetting their expectations.
Rotation Into Growth—Again? As rates have stabilized, investors are reassessing the value vs. growth rotation. While 45% of respondents expect value equities will outperform growth over the next month, 39% of respondents indicated that growth will outperform value—reversing the current trend. “Given the increased volatility in the tech and growth sectors in February and March, it seems investors have reduced their overall holdings of tech, but it’s too early to say if it’s a correction or a trend reversal,” says Oscar Ostlund, head of content for Marquee, the digital platform for the Global Markets.
Above (L to R): Fadi Abuali, Jessica Binder Graham and Jonny Fine of Goldman Sachs
In recent episodes of The Daily Check-In, experts from Goldman Sachs discuss the four megatrends in the retail investing space, the rise of thematic ETFs and the evolution of ESG financing.
Fadi Abuali, CEO of Goldman Sachs Asset Management International, on the impact of millennials—one of the four megatrends that will dominate retail investing over the next decade: “For millennials, the focus is really on travel, restaurants, concerts—all of these things and activities that, for the last few months, they haven’t been able to participate or engage in. And so we expect those activities to experience a cyclical rebound and complement an already attractive medium growth trend in that area.” [Watch video]
Jessica Binder Graham, co-head of European Equity Research for Goldman Sachs Research, on the rapid rise of thematic ETFs: “It’s no coincidence that many of these funds took off at the same time that we saw dramatic pickup in retail investing in the U.S. as it is catering to those retail investors. And I think a lot of people look at these as a way to gain exposure to very long-term disruptive areas with the added benefit of diversification across stocks and in some cases, geography.” [Watch video]
Jonny Fine of Goldman Sachs’ Investment Banking Division, on how ESG financing will evolve in the next three to five years: “Right now I’d say that we’re at the early or middle stage of Phase 1. That’s rapid growth in specific ESG financing markets such as those that we’re seeing in the investment-grade and high-yield bond markets both here as well as in Europe… Now, Phase 2, which in all truth is happening in parallel, is all about the company and not about the financing product. Corporations, for example, that have a really robust decarbonization KPI, they won’t need to issue a sustainability-linked bond to get a cost-of-capital advantage—money is going to flow to them anyway.” [Watch video]
This week, Goldman Sachs announced first-quarter 2021 earnings results, reporting per-share earnings of $18.60. “Our first quarter results underscore the ongoing strength of our franchise in the supportive environment which we operated during the quarter,” Goldman Sachs Chairman and CEO David Solomon said during the firm’s first-quarter earnings call. “These results also evidenced our successful execution towards the firm’s strategic priorities.” That message was amplified by CFO Stephen Scherr, who underscored the firm’s risk management strengths in an episode of The Daily Check-In. Scherr addressed whether the performance in the quarter is sustainable over the remainder of the year: “I think we have reason to be confident in that sustainability because we have, over the last several quarters, been picking up market share. Whether that’s market share in investment banking, in our M&A business, in our equity capital markets business. It’s equally showing itself across all of global markets, particularly in equities this quarter.”
Briefly on…Reflation and Risk
The simultaneous pickup in economic growth and inflation—or reflation—following the hit to both during the COVID-19 pandemic has revived investors’ appetite for riskier assets. Unprecedented levels of fiscal stimulus have helped boost momentum. While stronger growth should sustain that trend into the second quarter, returns on risky assets like equities will likely slow from here, says Goldman Sachs Research’s Christian Mueller-Glissmann. We sat down with Christian to dig into his outlook across asset classes for the year to come.
Christian, how do you expect global equities to move over the next 12 months?
Christian Mueller-Glissmann: We remain broadly pro-risk in our asset allocation and are overweight equities over both a three- and a 12-month horizon. Within the asset class, we prefer non-U.S. over U.S. stocks, a position that reflects the opportunities we see in cyclical, value and short-duration equities. We have shifted from industrial to consumer cyclical sectors and themes to position for the reopening of economies.
Your Risk Appetite Indicator currently sits at an elevated level. What are the implications for investors’ asset allocation strategies?
Christian Mueller-Glissmann: Our measure of risk appetite has climbed materially since the beginning of 2021 amid the bullish shift and reflation optimism in global markets. That means adding risk from here becomes trickier and portfolios become more vulnerable to negative growth and rate shocks. Growth and reflation optimism should be able to sustain risk appetite at high levels: Our economists’ macro outlook continues to be positive, so we don’t think bullish positioning and sentiment alone have been reasons enough to reduce risk. Still, the increased risk appetite will likely act as a speed limit to equity returns.
What about other asset classes?
Christian Mueller-Glissmann: We remain bullish on commodities. Given the recent weakness in oil prices, we’ve moved to an overweight position from neutral over a three-month horizon and remain overweight over 12 months. In periods of high and rising inflation, commodities can act as a diversifier for balanced portfolios: When equities and bonds have declined together due to inflation risks, commodities have often decoupled and offered attractive carry. We remain neutral on credit and underweight on bonds. Growth optimism will likely persist and longer-dated yield levels remain low even after their recent advance, which should continue to push investors towards riskier pockets of the market.
What are investors most worried about right now?
Christian Mueller-Glissmann: We’ve been hearing concerns over the prospect of a deeper bond sell-off and larger-than-expected increase in inflation as global growth momentum accelerates. We expect fears over hawkish monetary policy and inflation risk to eventually fade. In our view, the reflation trend will likely continue in the near term. While there is potential for an inflation overshoot, a transition to a “Goldilocks” scenario into year-end— with growth still robust but the bond sell-off easing—is most consistent with our forecasts. This should eventually create opportunities to add exposure to long-duration assets and carry strategies. Until then, higher allocations to real assets such as commodities can help reduce risks from high inflation for balanced portfolios.Read more Briefly Q&As