By Sam Boughedda
Goldman Sachs analysts told investors in a note Monday that the firm remains underweight the S&P 500 Industrials sector despite its 19% rally since the start of the fourth quarter.
"The S&P 500 Industrials sector in 4Q has outperformed the index by 10 pp (19% vs. 9%) despite growing evidence that the economy is slowing," wrote the analysts. "Optimism around China re-opening as well as typical patterns of sector outperformance at this stage of the cycle help to explain why Industrials stocks are rallying but fall short of explaining the magnitude of outperformance."
Goldman Sachs expects the Inflation Reduction Act and CHIPS Act will "provide secular tailwinds to capex" over the next decade by incentivizing spending on reshoring supply chains and the transition to green energy.
However, the analysts said the sharp fall in CEO confidence supports their view that capex will decelerate next year. They explained that "there are also signs that capex will slow in the coming months."
"For example, the Conference Board survey of CEO expectations for the economy has historically been a leading indicator of capex growth and has deteriorated recently, implying a sharp slowdown in capex in coming quarters," wrote the analysts. "This aligns with our forecast that S&P 500 capex will rise by only 3% next year in our baseline 'soft landing' scenario and would decline by 15% in a recession."