In a recent commentary, Goldman Sachs Asset Management highlighted that some of the most promising investment opportunities in the upcoming year may not necessarily be tied to the artificial intelligence (AI) boom that has dominated headlines. According to Greg Calnon, cohead of public investing at the financial institution, there is a significant potential for growth across various market segments as the current rally in mega-cap technology companies begins to expand.
Calnon believes the overall market outlook for risk assets remains strong as we approach the next year, buoyed by factors such as the Federal Reserve’s anticipated interest rate cuts. He noted that these economic conditions are already beginning to lift sectors that have not been in the public eye.
Calnon outlined three key areas where investors might find lucrative opportunities as the market evolves:
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Small-Cap Stocks: He emphasized that small-cap companies are at the forefront of the AI revolution, even if the spotlight mainly shines on larger tech players. Many of these smaller firms are well-poised to carve out niches in competitive markets without directly challenging the biggest spenders in AI technology. With attractive valuations compared to their larger counterparts, the Russell 2000 index has risen by 11.3% year-to-date. Calnon expressed optimism about the innovation driven by these small companies, suggesting they hold substantial potential for profit.
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Healthcare Sector: Calnon observed that the healthcare industry is starting to benefit from the AI hype as well. Indicators suggest that the stock rally is extending into this sector, exemplified by a 14.5% increase in the iShares US Healthcare ETF year-to-date. He pointed out the burgeoning investment opportunities within the healthcare segment, particularly those intersecting with AI advancements, positioning healthcare as a leading driver of future growth.
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International Stocks: Highlighting the performance of international equities, Calnon noted that these stocks have already begun to outshine the U.S. market this year. The Vanguard Total International Stock Index Fund ETF has surged by 26.8% year-to-date, marking a notable shift in market dynamics. Goldman Sachs has previously predicted that international stocks are likely to significantly outperform U.S. stocks over the next decade. The S&P 500 is projected to yield an annual return of 6.5%, in contrast to the anticipated 10% annual gains in emerging markets and various Asian equities. Calnon emphasized the need for a broader perspective, suggesting that the focus on U.S. markets should not overshadow the opportunities present in other regions.
Overall, Goldman Sachs Asset Management is optimistic about the possibility of diverse investment avenues in the coming year, spanning small-cap stocks, healthcare, and international markets, underscoring a shift in investor sentiment toward a more inclusive view of global opportunities.
