2020 US Equity Outlook - United We Fall, Divided We Rise

25 November 2019 | 4:00AM EST
2020 US Equity Outlook: United we fall, divided we rise
n Path: The bull market in US equities will celebrate its 11th anniversary in 2020. A David J. Kostin
+1(212)902-6781 | david.kostin@gs.com
durable profit cycle and continued economic expansion will lift the S&P 500 Goldman Sachs & Co. LLC
index by 5% to 3250 in early 2020. However, rising political and policy Ben Snider
+1(212)357-1744 | ben.snider@gs.com
uncertainty will keep the index range-bound for most of next year. Our baseline Goldman Sachs & Co. LLC
forecast is EPS will rise by 6% to $174 in 2020 and by 5% to $183 in 2021. Arjun Menon, CFA
+1(212)902-9693 | arjun.menon@gs.com
Goldman Sachs & Co. LLC
n Destination: The election will resolve the uncertainty. Prediction markets
Ryan Hammond
suggest a divided federal government is the most likely outcome. Equity returns +1(212)902-5625 |
ryan.hammond@gs.com
under a divided government have typically exceeded returns achieved when one Goldman Sachs & Co. LLC
For the exclusive use of BILL@ELYAVENUE.COM
political party controls Washington, D.C. Clarification of policy will expand the P/E Cole Hunter, CFA
+1(212)357-9860 |
multiple to 18.6x and push the index to 3400 by year-end 2020. But a unified cole.p.hunter@gs.com
government could prompt investors to lower projected 2021 EPS to $162 and
Nicholas Mulford
compress the P/E to 16x, resulting in the index closing next year at 2600. +1(212)357-6308 |
nicholas.mulford@gs.com
n Growth at a Reasonable Price (GARP): Macro signals suggest investors should
Jamie Yang
avoid extremes of growth and value. Our GARP screen identifies a list of 47 +1(212)357-5913 | jamie.yang@gs.com
stocks within the Russell 1000 index that rank in the top 20% of growth within
their sector but do not carry top or bottom quintile valuations.
n Dividend yield and growth: The strategy positions for an eventual value
rotation while collecting a premium yield. Our 50-stock basket (GSTHDIVG) offers
a higher dividend yield (3.3% vs. 1.9%) and faster dividend growth through 2021
ce1371c3adcd4d78923bea873faf3ab8
(9% vs. 5%) and trades at a dramatically lower P/E multiple (12x vs. 18x).
n Sectors: We continue to recommend an overweight position in Information
Technology (23% of S&P 500) and Industrials (9%). Neutral allocation to
Financials, Communication Services, Real Estate, and Materials. Underweight
Health Care, Consumer Discretionary, Consumer Staples, Energy, and Utilities.
n Election 2020: How female portfolio managers vote with their AUM. In
honor of a century of women’s suffrage, we analyze fund holdings by the gender
of the portfolio manager: Women invest in Technology, Men invest in Financials.
n Blurriness to our 20/20 vision: Risks to our forecast include US-China trade and
tariffs, illiquidity, rising corporate leverage, reduced company buybacks, index
concentration, antitrust investigations, and global economic growth.
Investors should consider this report as only a single factor in making their investment decision. For Reg AC
certification and other important disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html.
Goldman Sachs
Table of Contents
2020 US equity outlook: United vs. divided government 3
Speed vs. Time: Election calendar and investment horizon 7
Earnings: The cycle continues 11
Valuation: Uncertainty in an otherwise friendly macro backdrop 14
Growth vs. Value: Caught between a rock and a hard place 17
The world according to GARP (Growth at a Reasonable Price) 22
Dividend yield and growth: Get paid while you wait 25
Sector allocation 28
A century of women’s suffrage: How female portfolio managers vote AUM 31
Blurriness to our 20/20 vision 35

2019 in review 37
Disclosure Appendix 38
25 November 2019 2
Goldman Sachs
2020 US equity outlook: United vs. divided government
“A house divided against itself cannot stand” is one of the most memorable lines
of Abraham Lincoln’s renowned oratory. Today, this sentiment rings particularly true
on a global scale given the uncertain and unstable political dynamics in so many nations
across the Americas, Europe, Middle East, Africa, and Asia.
Maxims in politics such as “United we stand, divided we fall” do not necessarily

hold in investing. In the United States, equity returns during periods of divided federal
government have typically exceeded returns achieved when one political party controls
the White House, Senate, and House of Representatives. Since 1928, excluding
recessions, when the federal government was controlled by a single party, the S&P 500
median 12-month return equaled 9%. However, the median return under a divided
government was 12% (see Exhibit 1). Prediction markets currently suggest the most
probable 2020 election outcome is a divided government.
The title of our 2020 US equity outlook, “United we fall, Divided we rise,”
acknowledges the importance of an election that is slightly less than one year
away. During the next 11 months, shifting electoral prospects of candidates will be
reflected in real-time prediction markets and sector and stock performance. During the
subsequent two months, S&P 500 performance will depend on the actual election
outcome.1
When the election result has been a divided government, during presidential
election years since 1928 the S&P 500 median return between the start of the year and
Election Day has equaled 11% compared with a 4% return under a unified government
election outcome. Obviously, this analysis assumes perfect foresight so it has limited
usefulness as a forecasting tool.
Exhibit 1: S&P 500 returns based on the control of federal government since 1928
15 %
14 %
Median S&P 500
12-month returns based on
13 % 12 %
control of US government
12 %
11 % 11 % Divided Government
10 % Unified Government
9%
9%
8%
8%
7%
6%
5%
n=45 n=46 n=33 n=32
4%
Total since 1928 Excluding recessions
Source: Goldman Sachs Global Investment Research
1
Assuming we do not have a repeat of the disputed election of 2000 when the winner of the presidency
was not determined until December 12th – 35 days after Election Day – when the Supreme Court ruled 5-4 to
halt the ballot recount in Florida that showed Republican George W. Bush leading Democrat Al Gore by just
537 votes of the 5.9 million cast, a margin of 0.009%.
25 November 2019 3
Goldman Sachs
Equity returns following Election Day are clearly affected by political outcomes.
Since 1928, when the election resulted in a divided government, the median stock
market return between Election Day and year-end equaled 1% compared with a 3%
return when the outcome was a unified government. However, the distribution of equity
market returns during divided government regimes both before and after an election
was tighter compared with times when a single party controlled the federal
government.
Investors focused on equity market implications of policies discussed on the

campaign trail need to take into account the probability that these outcomes will
be realized. As discussed in our recent report, US Equities and the 2020 Election:
Rhetoric vs. Probability (November 1, 2019), a candidate would need to win the
presidency, have the support of both chambers of Congress, and actually pass
legislation. Prediction markets currently assign a 74% probability that Democrats control
the House, a 54% likelihood that they win the presidency, but only a 35% probability
that they control the Senate (see Exhibits 2 and 3).
Exhibit 2: Prediction market probabilities over time Exhibit 3: Current prediction market probabilities
90% 100%
Prediction market probability that Prediction market probability
Democrats have control following 2020 election that Democrats have control
80%
House: following 2020 election
74% 74%
75%
70%
60% Presidency: 54%

54% 50%
50%
35%
40%
Senate: 25%
35%
30%
20% 0%
Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Presidency Senate House
Source: PredictIt, Goldman Sachs Global Investment Research Source: PredictIt, Goldman Sachs Global Investment Research
Our baseline forecast is S&P 500 EPS will rise by 6% to $174 in 2020 and by 5% to
$183 in 2021. Our economics research colleagues assume real GDP growth will average
2.3% in 2020, well above the consensus expectation of 1.8%.
Unlike much of the rhetoric surrounding the upcoming election, the impact of
corporate tax rates on S&P 500 earnings can be quantified. Under the 2017 Tax Cuts
and Jobs Act, the federal statutory corporate tax rate was reduced from 35% to 21%.
Including state and local taxes, the US statutory corporate tax rate now stands at 26%
versus 39% under the prior tax regime. However, S&P 500 companies typically have
effective tax rates well below the statutory rate. The median S&P 500 firm saw its
effective tax rate fall from 27% in 2017 to 19% in 2018. In EPS terms, the reduced
effective corporate tax rate translated into $13 of incremental EPS for the S&P 500 in
2018. Stated alternatively, approximately 43% of the jump in EPS between 2017 and
2018 ($13 of $30) stemmed directly from the lower tax rate (see Exhibit 4).
25 November 2019 4
Goldman Sachs
Several presidential candidates have proposed rolling back the 2017 corporate tax
cut. As we discussed in our recent report, Assessing the impact of potential
post-election policy changes on S&P 500 earnings and valuation (November 1, 2019), we
estimate that every 1 percentage point (pp) change in the effective corporate tax rate
would lead to a roughly 1% change in S&P 500 EPS. If the 2017 corporate tax cut is
entirely reversed, our baseline 2021 EPS estimate of $183 would be reduced by 11% to
$162. Assuming the bill is applied retroactively to the start of the year, S&P 500 earnings
growth in 2021 would equal -7%, compared with our baseline estimate of +5%.
Exhibit 4: S&P 500 earnings
$200
GS top-down forecast
$183
$180 S&P 500 annual EPS $174
$165 EPS if
$163 tax cut
Boost reversed:
$160
from $162
lower
tax rate:
$13
$140
$133
$119 Excluding
$119 $118
$120 lower tax
$110 rate:
$150
$104
$100 $98
$80
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source: FactSet, Goldman Sachs Global Investment Research
Prediction market pricing implies the 2020 election outcome will reduce policy
uncertainty. Our base case valuation forecast assumes the S&P 500 forward P/E
hovers around the current level of 18.0x for most of next year before rising to 18.6x
following the election as uncertainty falls. Historically, valuations have moved sideways
during the lead-up to presidential elections before moving higher following Election Day.
The election result will affect equity valuations through changes in policy
uncertainty and consumer confidence. We use our macro model of the yield gap
between the S&P 500 earnings yield and 10-year US Treasury yield to estimate the
impact of uncertainty and confidence on equity valuations. Our baseline forecast
assumes that following the election the S&P 500 forward P/E multiple expands slightly
to 18.6x. However, if US policy uncertainty post-election rises rather than falls, or
consumer sentiment declines, the equity risk premium would increase and the P/E
multiple would compress by approximately 2 points to 16x (see Exhibit 5).
25 November 2019 5
Goldman Sachs
Exhibit 5: S&P 500 valuation
21x
Year-end
20x Current 2020E
S&P 500 forward P/E 18.0x
19x Baseline
18.6x
18x +2 std. dev.
17x
16x Downside
16.0x
15x
14x
13x
12x
11x
10x -2 std. dev.
9x
2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
Source: Compustat, Goldman Sachs Global Investment Research
We expect the current bull market in US equities will continue in 2020. The durable
profit cycle and continued economic expansion will lift the S&P 500 index by 5% to
3250 in early 2020. However, rising political and policy uncertainty will keep the index
range-bound for most of 2020. Clarification of policy will expand the P/E multiple to
18.6x and push the index to 3400 by year-end 2020 (see Exhibit 6).
Alternatively, the election outcome could magnify risks or the economic growth
outlook could deteriorate. A unified federal government post-election could prompt
investors to assume the tax cut is reversed and lower projected 2021 EPS to $162 (-7%
year/year growth), compressing the P/E multiple to 16x consistent with an index level of
2600.
Exhibit 6: Path of the S&P 500 in 2020
3600
Year-end 2020E
3400 S&P 500 price 3-mo & 6-mo: Baseline
3250 3400
Current:
3200 Tariffs 3104 (+10% return)
announced
March 2018
3000
2800
Trump Downside
2600
elected 2600
November 2016 (-16% return)
2400
2200
2000
1800
2016 2017 2018 2019 2020 2021 2022
25 November 2019 6
Goldman Sachs
Speed vs. Time: Election calendar and investment horizon
Speed is a highly prized attribute in modern day national politics. During this year’s
series of 3-hour Democratic presidential primary debates, each candidate is allowed one
minute and 15 seconds for direct responses to questions and 45 seconds for rebuttals.
Politics at the speed of light is possible in a 5G world with 24-hour cable news and
280-character Twitter posts.
In fact, speed matters more in the 2020 Democratic primary than in prior election
cycles. The decision by several states, notably including California, to move their
primary elections earlier in the calendar year means that 65% of the delegates to the
national convention will be determined within a compressed six-week window between
February 3rd and March 17th (see Exhibit 7). Roughly 40% of delegates will be
determined between the Iowa caucuses on February 3rd and ‘Super Tuesday’ on March
3rd. In previous cycles, the winner of the nomination was sometimes not determined
until five months after the first votes were cast given delegate-rich California traditionally
held its primary in June.
For the 2020 election, a majority (1,990+) of the 3,979 pledged delegates is needed
to secure the Democratic nomination on the first ballot. States award delegates
proportionally. A candidate needs a 15% minimum threshold to receive any delegates.
With 416 delegates, California accounts for nearly 20% of the total needed to win the
nomination on the first ballot. If no winner emerges after the first ballot, then 766
so-called ‘super-delegates’ (primarily state party leaders) will be allowed to vote and a
winner will then need a majority (2,373+) of the 4,745 delegates to become the
nominee. The Democratic National Convention will take place from July 13-16, 2020.
Exhibit 7: Two thirds of delegates will be pledged by mid-March
100%
2020
90%
2020 Election Timeline Election
Cumulative share of
Democratic primary delegates
80%
70%
March 17: 65%
60%
2 weeks
50%
40% March 3 ("Super Tuesday"): 40%

30%
20% 4 weeks
10%
February 3 (Iowa caucus)
0%
Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20
Note: Includes an estimated 211 “bonus delegates” based on current primary schedule
Source: The New York Times, Goldman Sachs Global Investment Research
25 November 2019 7
Goldman Sachs
Time once mattered more than speed. Each of the seven “Lincoln-Douglas” debates
of 1858 also lasted 3 hours. But the debate structure would be unrecognizable to a
current voter. The debates between Abraham Lincoln, the Republican Party nominee for
US Senator from Illinois, and Stephen A. Douglas, the Democratic incumbent, called for
a candidate to speak for 60 minutes, and then the other candidate spoke for 90 minutes,
and then the first candidate was allowed 30 minutes for a rebuttal!
Two of the last five US presidential elections mirrored an experience from the
past: Abraham Lincoln won the Illinois statewide popular vote, but lost the senate
election because Stephen Douglas had more electoral votes in the state General
Assembly.2 A year later, Lincoln triumphed in the national election of 1860 and was
elected the 16th President of the United States.
Time horizon for an investment strategy will be unusually important next year.
Equity investors will experience share price volatility that mirrors the vicissitudes of the
presidential and various senatorial campaigns.
The importance of the election calendar is apparent in options pricing. As our

options strategist Rocky Fishman noted in Vol Vitals: Short-term calm, longer-term fears
(November 12, 2019), the current S&P 500 term structure shows clear kinks in implied
volatility around March 3rd (Super Tuesday) and November 3rd (General Election).
Demand for options around next year’s elections led to some key 2020 contracts being
listed earlier than they otherwise would have been.
Exhibit 8: Implied volatility term structure around Super Tuesday Exhibit 9: Implied volatility term structure around Election Day
3100 strike put implied volatility 3100 strike put implied volatility
16 17.5
S&P 500 S&P 500

implied volatility implied volatility
15 term structure 17.0 term structure
Implied volatility (%)
Implied volatility (%)
14 16.5
13 Super 16.0
Election
Tuesday
Day
12 15.5
11 15.0
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 30-Jun-20 30-Sep-20 31-Dec-20 31-Mar-21
Expiration Expiration
Source: Bloomberg, Goldman Sachs Global Investment Research Source: Bloomberg, Goldman Sachs Global Investment Research
The options market also shows more investor concern over the next year relative
to the short-term outlook. Three-month SPX skew currently ranks around its 76th
percentile relative to the last 5 years, while 12-month skew ranks at the 98th percentile.
2
US Senators were elected by state legislatures until the ratification of the 17th Amendment to the US
Constitution in 1913. Since then, Senators have been elected by statewide popular vote.
25 November 2019 8
Goldman Sachs
Exhibit 10: SPX put-call skew over time
0.65
0.60 S&P 500 put-call skew
0.55
12-month
0.50
0.45
0.40
3-month
0.35
0.30
0.25
Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
As investors consider the outcome of the election, the distribution of S&P 500
levels implied by the options market at year-end is wide. The options market
currently implies a 22% probability the S&P 500 ends next year above 3400 and a 28%
probability the index ends 2020 below 2600.
The options market is indicating different distributions of risk before and after
Election Day. Skew is higher for the September and October 2020 maturities than for
the November and December 2020 maturities. This can be seen from the spike in
upside implied volatility from October to December and little gap in downside implied
volatility. This likely reflects investors positioning for a post-election relief rally once
November uncertainty has been resolved.
25 November 2019 9
Goldman Sachs
Exhibit 11: Difference in SPX implied vol between expiry dates
1.2
1.0 Difference in SPX implied volatility

between
0.8 September 2020 expiration and
Difference in vol points

October expiration
0.6
December expiration
0.4
0.2
0.0
-0.2
-0.4
-0.6
2300 2400 2500 2600 2700 2800 2900 3000 3100 3200 3300 3400 3500
Source: Bloomberg, Goldman Sachs Global Investment Research

The US is a 50/50 nation so forecasting the outcome of a presidential race when

Election Day is 12 months in the future represents an exercise in futility. We make
no prediction on the outcome of the presidential race. From a macro perspective,
President Trump has consistently registered a negative net approval rating but at the
same time the economy is forecast to expand at an above-trend pace in 2020. Exhibit 12
shows why options may be a useful tool for fund managers in 2020.
Exhibit 12: Re-elections based on net approval rating and economic growth
40%
Incumbent WINS
Presidential net approval rating (Q2 election year)
30% Incumbent LOSES Nixon Johnson
(1972) (1964)
Reagan
(1984)
20% Eisenhower
(1956)
Clinton
10% (1996)
Obama
W. Bush
(2012)
(2004)
0%
Current presidential
net approval: -9 pp Trump
(2020)
-10%
H.W. Bush
Carter (1992) YTD avg. real GDP
(1980) growth per capita: 1.7%
-20%
-2% -1% 0% 1% 2% 3% 4% 5% 6%
Average real GDP growth per capita (2-year avg. thru Q3 of election year)
Source: Real Clear Politics, Goldman Sachs Global Investment Research
25 November 2019 10
Goldman Sachs
Earnings: The cycle continues
We estimate S&P 500 earnings will equal $165 in 2019 (+1% growth), $174 in 2020
(+6%), and $183 in 2021 (+5%). We trim our 2019 EPS estimate by $2 to reflect
weaker-than-expected realized EPS growth through 3Q. Nearly half of the shortfall is
attributable to lower-than-expected Energy earnings and a quarter of the change is due
to weak Boeing (BA) earnings. We also lower our 2020 and 2021 estimates by roughly
$3, but expected growth remains largely unchanged. Our forecast assumes sales
growth roughly in line with nominal GDP growth and margins that rebound by just 18 bp
through 2021 following a 65 bp decline in 2019 (see Exhibit 13). Notably, while
aggregate S&P 500 EPS growth will register a paltry 1% in 2019, the median index
constituent is on pace to grow earnings by 6%.
Our estimates are modestly below consensus in 2020 and 2021, primarily driven
by lower expectations for profit margins. Consensus bottom-up estimates usually
indicate roughly 11% EPS growth for the S&P 500 at the start of the estimate period
two years prior before eventually being revised lower. The culprit is usually
overly-optimistic margin assumptions, a dynamic we believe is repeating today. There

have been just 7 years since 1985 during which consensus bottom-up estimates have
been revised higher. The consensus 2020 EPS estimate has been cut by 5% thus far, in
line with the historical pattern, and our estimate of $174 implies an additional 3%
negative revision during the next year.
Exhibit 13: Goldman Sachs top-down forecasts

Goldman Sachs top-down Consensus bottom-up
2017 2018 2019E 2020E 2021E 2019E 2020E 2021E
S&P 500 ex-Financials, Utilities, Real Estate
Sales Per Share $1016 $1104 $1166 $1223 $1278 $1164 $1236 $1297
Year/Year growth 7% 9% 6% 5% 5% 5% 6% 5%
Profit Margin 10.0% 11.3% 10.7% 10.8% 10.9% 10.6% 11.0% 11.7%
Year/Year growth 57 bp 129 bp (65)bp 13 bp 5 bp (68)bp 37 bp 68 bp
S&P 500 adjusted EPS $133 $163 $165 $174 $183 $164 $178 $197
Year/Year growth 12 % 23 % 1% 6% 5% 1% 9% 10 %
US economic growth is the most important driver of S&P 500 EPS. Average
economic activity alone can explain more than half the variation in annual S&P 500 EPS
growth since 1990. Based on our top-down model, every 1 pp change in US GDP
growth equates to roughly $5 of S&P 500 EPS. Our economists forecast US GDP
growth will average 2.3% in 2020 (well above consensus of 1.8%) and 2.4% in 2021,
consistent with modest single-digit earnings growth, all else equal (see Exhibits 14 and
15).
25 November 2019 11
Goldman Sachs
Exhibit 14: GS Economics forecasts 2.3% growth in 2020 Exhibit 15: US GDP growth of 2% consistent with 5-6% EPS growth
16 50 %
R† = 0.54
40 % US economic growth
14 2020 US real GDP vs. S&P 500 EPS
forecasts (since 1990)
Annual S&P 500 EPS growth

30 %
12 (n=52)
Consensus
20 %
1.8%
# of forecasts
10
10 % 2020E
2009
8
0%
2021E
6 (10)%
Goldman 1991
4 Sachs (20)%
2.3% 2001
2 (30)% 2008
(40)%
0 (4)% (2)% 0% 2% 4% 6%
0.5% 0.8% 1.1% 1.4% 1.7% 2.0% 2.3% 2.6%
Average US CAI
2020 US GDP Growth
Note: Growth represents annual average. Note: 2020 and 2021 growth reflect GS real GDP growth estimates.
Source: Consensus Economics, Goldman Sachs Global Investment Research Source: FactSet, Goldman Sachs Global Investment Research
We expect sales growth will continue to grow roughly in line with nominal GDP
growth. Outside of economic activity, the path of the trade-weighted dollar will remain
an important determinant of top-line growth. Our FX strategists forecast a modestly
weaker dollar, which should provide a tailwind to S&P 500 sales growth and in particular
companies with high foreign revenue exposure.
We forecast the S&P 500 net profit margin will rise by just 13 bp in 2020 and 5 bp
in 2021 as a solid economic growth backdrop is offset by rising wages and other
input costs. Margins are on track to fall by 65 bp in 2019, driven in large part by the
Energy sector and a few large-cap technology stocks. Margins for the median stock are
pacing down 30 bp, but we expect an improving economic growth environment
combined with an abatement of these idiosyncratic headwinds will support slight index
margin recovery in 2020. Accelerating labor inflation threatens profit margins for many
firms (see Exhibit 17).
Exhibit 16: We forecast less margin expansion than consensus Exhibit 17: Margins face headwinds when wages rise faster than
prices
13% 300 bp 5 pp
Bottom-up Consensus S&P 500 4Q net 4 pp

12%
Forecast profit margin
200 bp
11% S&P 500 Net Profit Margin growth 3 pp
(left axis)
(ex-Financials and Utilities) 10.8
10% 2 pp
100 bp
9% 1 pp
Goldman Sachs
8% Portfolio Strategy 0 bp 0 pp
Forecast
7% (1)pp
6.9
(100)bp Core PCE less
6% (2)pp
unit labor costs
5.5 (right axis)
5% (3)pp
(200)bp GS
4% forecast (4)pp
3% (300)bp (5)pp
1990 1994 1998 2002 2006 2010 2014 2018 2022 1995 2000 2005 2010 2015 2020 2025
Source: FactSet, Goldman Sachs Global Investment Research Source: BLS, Goldman Sachs Global Investment Research
25 November 2019 12
Goldman Sachs
Tax rates and tariffs represent two key risks to our top-down earnings forecast. The
S&P 500 YTD effective tax rate has equaled 19%, well below consensus expectations
for 21%. Analyst estimates currently imply a 21% tax rate in 4Q and in 2020. If the 2019
YTD pattern continues, it could mitigate likely negative revisions to consensus EPS
estimates. However, several presidential candidates have proposed raising corporate tax
rates, and we estimate every 1 pp change in the effective tax rate would lead to a
roughly 1% change in S&P 500 EPS. Our model suggests a complete reversal of the tax
cut would translate into 2021 EPS of $162 rather than our current estimate of $183 (see
Exhibit 19). The impact of tariffs on profits remains highly uncertain. Recent reports
suggest that pending tariffs may be delayed or rolled back. Currently, tariffs have been
levied on roughly $370 billion of imports from China.
Exhibit 18: Effective tax rates declined by 8 pp following tax reform Exhibit 19: Sensitivity of S&P 500 EPS to tax rates
55% S&P 500 2021 EPS

United States corporate income tax rate Effective tax rate
50%
14% 18% 22% 26% 30%
45%
Statutory rate
(including federal and local) 1.0% $184 $175 $166 $157 $148
40% 39%
US GDP growth
1.5% 186 178 169 160 151
35%
30% 27% 2.0% 189 180 171 162 153

2021E:
25% Median S&P 500 company 26%
effective rate 2.5% 192 183 174 165 156
20%
19% 3.0% 194 185 176 168 159
15%
1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 2022
Source: OECD, Compustat, Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research
Exhibit 20 shows the sensitivity of S&P 500 EPS to macro drivers. Higher interest
rates and oil prices provide a boost to Financials and Energy EPS, respectively, but
weigh on the profitability of companies outside of these sectors. Higher inflation boosts
nominal sales growth but pressure margins, resulting in a modest impact on EPS.
Exhibit 20: Sensitivity of our top-down EPS forecasts

Baseline estimates represent average of quarterly estimates
Baseline Sensitivity
Chg from S&P 500
Variable 2020E baseline EPS impact
US GDP 2.5 % +100 bp +$5
World GDP 3.5 % +100 bp +3
Core CPI inflation 2.3 % +100 bp +1
Brent crude oil $58 +$10 +1
10-year UST yield 2.0 % +100 bp +0.5
Trade-weighted US dollar (0.5)% +10 pp -3
Statutory corporate tax rate 26 % +1 pp -2.5
S&P 500 net margins 10.8 % +50 bp +6
S&P 500 EPS $174
25 November 2019 13
Goldman Sachs
Valuation: Uncertainty in an otherwise friendly macro backdrop
We forecast a slight expansion in the S&P 500 forward P/E multiple from 18.0x
today to 18.6x by year-end 2020. The S&P 500 has surged 24% YTD and 93% of the
2019 rally has been driven by valuation expansion. Based on a variety of valuation
metrics, S&P 500 currently trades in the 89th percentile of valuation relative to the past
40 years (see Exhibit 21). Although above historical averages, our models indicate that
the S&P 500 trades at fair value relative to interest rates and the broad macro
environment (see Exhibit 22). Our valuation forecast for 2020 assumes no major change
in the equity-friendly interest rate environment.
Exhibit 21: S&P 500 valuation stretched in absolute terms Exhibit 22: Our model suggests S&P 500 trades at fair value
Aggregate index Median stock
Historical Historical 800 bp
Valuation metric Current %ile Current %ile S&P 500 yield gap
700 bp Actual
US market cap / GDP 199 x 99 % NA NA S&P 500 earnings yield -
10-year US Treasury yield
600 bp
EV / sales 2.5 x 98 2.8 x 96
500 bp
Price / book 3.5 x 90 3.3 x 97
400 bp
EV / EBITDA 12.4 x 91 12.7 x 99
Cyclically adjusted P/E (CAPE) 27.4 x 89 NA NA 300 bp

Modeled
Forward P/E 18.0 x 87 17.9 x 93 200 bp
Free cash flow yield 4.2 % 51 4.2 % 57 100 bp
Yield gap vs. 10-year UST 380 bp 25 NA NA 0 bp

R2 = .70
Median metric 89 % 95 % (100)bp
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
Source: Compustat, Goldman Sachs Global Investment Research Source: Compustat, Goldman Sachs Global Investment Research
We forecast the yield gap between equities and bonds will compress from 380 bp
today to 315 bp by year-end 2020. The “Fed Model” compares the gap between the
S&P 500 earnings yield (the inverse of forward P/E) and the 10-year US Treasury yield
(see Exhibit 23). By the end of 2020, we expect the S&P 500 earnings yield will be 20
bp lower (falling from 5.6% to 5.4%) and our rates strategists forecast the 10-year US
Treasury yield will be 45 bp higher (rising from 1.8% to 2.25%). The baseline forecast for
a 65 bp spread compression to 315 bp would represent a yield gap below the 5-year
average of 350 bp but above the 20-year average of 290 bp (see Exhibit 24). Notably, our
year-end 2020 yield gap forecast is 75 bp wider than the cycle low of 240 bp reached in
January 2018, when the S&P 500 P/E reached 19x alongside a 10-year Treasury yield of
2.9%, 110 bp higher than yields today.
25 November 2019 14
Goldman Sachs
Exhibit 23: Bond yields expected to remain low at 2.25% Exhibit 24: We forecast yield gap compression in 2020
20 % 1000 bp
Yield Gap
18 % S&P 500 earnings yield less
S&P 500 earnings yield vs. 800 bp
10-year US Treasury yield 10-year US Treasury yield
16 %
Yield gap
600 bp Period (average)
14 %
1976 - present 230 bp Current:
20-year 290 380 bp
12 % 5-year 350
400 bp
S&P 500
10 % earnings yield
200 bp 2020E:
8% 315 bp
2020E:
5.4%
6% 0 bp
4% 2020E:
US 10-year 2.25% (200)bp
2%
Treasury yield
0% (400)bp
1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024
Source: Compustat, Goldman Sachs Global Investment Research Source: Compustat, Goldman Sachs Global Investment Research
Equities generally appear attractively valued relative to the limited opportunity set
in other asset classes. Bond yields remain extremely low across the world and our
economists expect little change in global central banks’ monetary policies in 2020.
Currently, 20% of global bonds trade with negative yields. Across asset classes, yields
on the S&P 500 are comparatively attractive relative to cash (1.6% yield) and 10-year
bond yields in the US and Germany (1.8% and -0.3%, respectively). Meanwhile, the S&P
500 offers a 4.2% FCF yield, a 4.8% total cash return yield, and a 5.6% earnings yield
(see Exhibit 25). A rise in equity valuations would also be consistent with the past
late-cycle environments; historically, the equity risk premium shrinks and valuations rise
as the economic cycle matures (see Exhibit 26).
Exhibit 25: “TINA” may incentivize allocation to equities Exhibit 26: Yield gap typically narrows late in the cycle
800 bp 50
S&P 500 earnings yield 5.6% 700 bp Consumer
Sentiment 60
600 bp (right, INVERTED)
S&P 500 total cash return yield 4.8% 500 bp 70
400 bp
S&P 500 FCF yield 4.2% 80
300 bp
200 bp
90
10-year US Treasury yield 1.8%
100 bp
0 bp 100
3-month US T-Bill yield 1.6%
(100)bp
Yield gap 110
(200)bp (S&P 500 earnings yield
10-year German Bund yield (0.3)% Current yield less 10-year UST yield)
(300)bp 120
1995 2000 2005 2010 2015 2020
(2)% 0% 2% 4% 6% 8%
Source: FactSet, Goldman Sachs Global Investment Research Source: Compustat, University of Michigan, Goldman Sachs Global Investment Research
25 November 2019 15
Goldman Sachs
Our year-end 2020 base case valuation forecast assumes no meaningful

deterioration in consumer confidence or further increase in already-elevated levels
of policy uncertainty. Our macro yield gap model incorporates consumer confidence,
realized and expected inflation, the output gap, and policy uncertainty. Policy uncertainty
has been high for much of 2019, weighing on equity valuations, while consumer
confidence has remained elevated, registering above 90 for the past three years (see
Exhibit 27).
However, if policy uncertainty were to rise from 100 to 150 or consumer sentiment
were to fall by 10 points to 85, the yield gap would widen and the S&P 500
forward P/E would decline by roughly 2 multiple points, all else equal. Exhibit 28
shows the sensitivity of S&P 500 valuation to changes in policy uncertainty and
consumer confidence. These year-end 2020 valuation sensitivities assume the 10-year
US Treasury yield equals 2.25%. A constant yield gap coupled with a higher bond yield
would also result in a lower P/E valuation, although our strategists do not expect bond
yields to rise sharply in 2020.
Exhibit 27: Drivers of our macro model of S&P 500 valuation relative to interest rates
110 300
US Economic
University of Michigan
Policy Uncertainty
100 Consumer Sentiment 250
90 200
80 150
70 100
60 50
50 0
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Source: PolicyUncertainty.com, University of Michigan, Goldman Sachs Global Investment Research
Exhibit 28: S&P 500 year-end 2020 valuation sensitivity to confidence and uncertainty
Yield gap (S&P 500 earnings yield vs. 10-yr UST yield) S&P 500 forward P/E
Avg. US Economic Policy Uncertainty Avg. US Economic Policy Uncertainty

50 100 150 200 50 100 150 200
100 235 bp 285 bp 335 bp 385 bp 100 21.9 x 19.7 x 17.9 x 16.4 x
Consumer Sentiment
Consumer Sentiment
2020E: 2020E:
95 265 315 365 420 95 20.5 18.6 17.0 15.6
90 295 345 400 450 90 19.3 17.6 16.1 14.9
85 325 380 430 480 85 18.2 16.7 15.4 14.2
80 360 410 460 510 80 17.2 15.8 14.7 13.6
25 November 2019 16
Goldman Sachs
Growth vs. Value: Caught between a rock and a hard place
As the Wall Street quip goes, “A trader asks what a stock will be worth when she
sells it, while an investor asks what a stock is worth when she buys it.” In the
parlance of portfolio management, the comment captures the essence of what
differentiates growth and value investing. Growth managers gravitate towards firms
with potential to dramatically increase earnings while value investors focus on
companies selling at a price below intrinsic value.
Following two and a half years of steady Growth stock outperformance, the sharp
rotation toward Value in recent months has caused investors to ask whether 2020
will witness a year of extended value stock outperformance or a rebound in
Growth. Our answer is that investors should avoid tilting toward either pure Growth or
Value strategies given the conflicting macro drivers.
Arguing for Value is a long track record of outperformance and strong theoretical and
academic support. A particularly wide distribution of stock valuation multiples today
furthers the long-term case for Value.
The case for Growth presumes the current 11-year expansion continues because
modest economic growth typically corresponds with growth stock outperformance. In
addition, wide valuation dispersion has historically been a poor signal for timing Value
outperformance.
The muddied outlook for Growth and Value individually leads us to the conclusion
that investors should seek both attributes at the same time.
We recommend investors focus on Growth at a Reasonable Price (GARP): Stocks

with strong growth profiles but without the extreme valuations carried by many
secular growth stocks. For long-term investors who prefer Value, our Dividend Growth
basket contains stocks with reasonable growth prospects that nonetheless trade at
near-record valuation discounts. Importantly, the above-average dividend yields of these
stocks means investors will be compensated for their patience if, as we expect, a major
Value rotation does not take place in the immediate future.
The Value story

Value has a stellar long-term performance track record (see Exhibit 29). However,
the last several years have favored investing on the basis of a stock’s high growth
profile rather than its low valuation multiple (see Exhibit 30). During four of the last
five years, expensive stocks outperformed low valuation firms as investors rewarded
stocks with attractive secular growth profiles, low volatility, and other “quality”
attributes in an economically challenging environment often characterized by the term
“secular stagnation.” The major exception was 2016, when our long/short, sector-neutral
Value factor returned 17% as the market moved past the global manufacturing recession
and began to price “reflation.” Mirroring that experience, improving growth data in
China, signs of easing trade tensions, and reacceleration in US economic growth have
catalyzed a sharp rotation toward value during the last few months.
25 November 2019 17
Goldman Sachs
Exhibit 29: Value has a strong long-term track record Exhibit 30: Value stocks have generally lagged in recent years
115
Valuation
110 Growth
equity factor performance (High vs. Low)
(low vs. high, log scale)
105
Indexed performance
100
1000
95
90
85 Valuation
(Low vs. High)
80
75
Indexed factor return
(sector-neutral, long/short)
Recession
100 70
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2015 2016 2017 2018 2019 2020 2021
Source: Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research
Historically, the level of valuation dispersion in the equity market has been a
strong indicator of future value stock performance, and dispersion today is

exceptionally wide. A large valuation spread between high multiple and low multiple
stocks suggests investors may generate an attractive return by purchasing the cheapest
stocks relative to the most expensive stocks and waiting for the spread to normalize.
That current valuation spread is, but for the recent rally, the widest it has been in the last
40 years outside of the peak of the Tech Bubble (see Exhibit 31).
The exceptionally cheap “value of Value” is also reflected in the extreme

valuations of other factors. The relative valuation today of high vs. low growth stocks
ranks two standard deviations above both the 10 and 35 year historical averages (see
Exhibit 32). In addition to stocks with high growth, the valuations of our balance sheet,
profit margin, volatility, dividend yields, and size factors all screen more than a standard
deviation above or below historical averages.
Exhibit 31: The spread between high and low valuation stocks is Exhibit 32: S&P 500 factor valuations relative to history
extremely wide
40x
Forward P/E of
S&P 500 top and bottom GROWTH (high vs. low)
35x valuation quintiles Highest
(sector-neutral) valuation: Balance sheets (strong vs. weak)
27x Equity factor
30x
Volatility (low vs. high) valuations vs.
historical averages
25x Returns (high vs. low)
35-year history
Avg: 20x
Margins (high vs. low)
20x 10-year history
Momentum (leaders vs. laggards)

15x Lowest
valuation:
VALUATION (low vs. high)
Avg: 10x 11x
10x
Size (small vs. large)
Expensive
5x Dividend yield (high vs. low)
0x (3) (2) (1) 0 1 2 3

1985 1990 1995 2000 2005 2010 2015 2020 2025 Stdev above average (Z-score)
Source: Compustat, I/B/E/S, Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research
25 November 2019 18
Goldman Sachs
While valuation dispersion is a strong indicator for the future performance of value
stocks, it carries little signal for timing. During the last 40 years, the relationship
between valuation dispersion and the subsequent relative return of low multiple vs. high
multiple stocks has been extremely tight for investors with long investment horizons,
such as a three-year holding period (see Exhibit 33). However, over shorter investment
horizons, such as 12 months, the relationship between valuation dispersion and Value
performance has been much weaker (see Exhibit 34). For example, at the start of 1999
the top quintile of S&P 500 stocks traded at a forward P/E multiple of 30x, while the
bottom quintile traded at just 12x. An investor owning the Value factor would have
watched it plummet by 30% during the subsequent 15 months. However, if the investor
had maintained the strategy for three years until the end of 2001, they would have
realized a cumulative total return of 65% (18% annualized).
Exhibit 33: Valuation dispersion has been a strong signal for Value Exhibit 34: Dispersion carries little signal for factor timing
strategy returns
50% 100%
Value stocks Tech R† = 0.56 Value stocks Current Tech
outperform outperform relative
Bubble Bubble
40% 80% valuation
Forward 3-year return (annualized)
R† = 0.29
30% Forward 1-year return 60%
Value factor
20% valuation vs. 40%
Value factor
forward 3-YEAR valuation vs.
10% relative returns 20% forward 1-YEAR
since 1980 relative returns
since 1980
0% 0%
Current Larger valuation Larger valuation

-10% gap between low -20% gap between
relative
valuation and high low and high
valuation stocks valuation stocks
-20% -40%
50 % 100 % 150 % 200 % 250 % 300 % 350 % 50 % 100 % 150 % 200 % 250 % 300 % 350 %
P/E premium of high vs. low valuation stocks P/E premium of high vs. low valuation stocks
The Growth story
Over short and intermediate investment horizons, the key driver of Growth vs.
Value performance is the macroeconomic environment and its impact on investor
risk sentiment. During periods of positive but modest economic growth, investors
willingly pay a valuation premium for stocks that can generate idiosyncratic growth in
excess of the economy (see Exhibit 35). In contrast, value stocks have historically fared
best on a relative basis during periods of very strong or very weak economic growth.
During periods of very strong or accelerating growth, the rising tide lifts all ships;
improving growth makes investors comfortable embracing the risk of low valuation
stocks because even low quality stocks with weak secular growth profiles can
successfully generate earnings growth in these environments. During periods of
positive but modest economic growth, investors willingly pay a valuation premium for
stocks that can generate idiosyncratic growth in excess of the economy. During periods
of very weak economic growth, investors tend to cut their risk exposure, benefiting
under-owned, low valuation stocks on a relative basis.
25 November 2019 19
Goldman Sachs
The performance of the US equity market during the past three months suggests
the pace of US economic growth will improve in the near future. In fact, our
economists expect real US economic growth will rise from roughly 1.9% today to 2.6%
by early 2020. We expect the value rally will continue in the near-term as economic data
releases confirm the expected acceleration. However, following the rebound, our
economists anticipate a return to the above-trend but unimpressive US economic
environment that has characterized most of this cycle, with GDP growth remaining in
the 1.5%-3% range where it has registered most of the last decade and which has
historically supported the outperformance of growth stocks (see Exhibit 36).
Exhibit 35: Growth stocks fare best in modest economic Exhibit 36: US economic growth has generally remained in a
environments narrow range this cycle
Returns since 1980 Realized growth rate reflects the GS US Current Activity Indicator
0.3% 6%
Growth vs. Value
median monthly return Growth US real economic growth
0.2% outperforms 5%
based on US economic growth
0.1%
4%
0.0%
3%
(0.1)%
2%
(0.2)% Value
outperforms
1%
GS GDP
(0.3)% growth
<0% 0-3% >3% forecast
0%
US economic growth (GS Current Activity Indicator) 2010 2012 2014 2016 2018 2020 2022
With factor correlation at record levels, the performance of Growth vs. Value in
coming months will probably also correspond with the performance of other
factor trades. In recent months the average realized pairwise correlation of our factors
has reached levels only achieved twice in the last 30 years: in 2Q 2009 as the equity
market bottomed in the Financial Crisis and in 1Q 1997 as the Tech Bubble began to
build (see Exhibit 37). The elevated correlations underscore the importance of the pace
of economic growth and investor risk sentiment in driving recent market rotations, and
we expect this dynamic will remain in effect in the near future.
25 November 2019 20
Goldman Sachs
Exhibit 37: Correlation between factors is extremely elevated

Incorporates 9 factors including Growth, Value, Size, Dividend Yield, Momentum, and Volatility
90%
3-month realized average factor correlation

80%
70%
60%
50%
40%
30%
20%
1990 1995 2000 2005 2010 2015 2020
The combination of extremely elevated valuation dispersion (good indicator for

Value outperformance) coupled with modest medium-term economic activity
(good indicator for Growth) creates a difficult challenge for investors. For portfolio
managers with long, multi-year investment horizons, patient capital, and strong
willpower, we believe the wide current valuation gap between the lowest and highest
multiple stocks makes value an extremely appealing strategy. However, most portfolio
managers are evaluated over shorter time horizons and valuation dispersion is a less
useful signal for tactical positioning.
To cut this Gordian Knot, we recommend two strategies:
1. GARP: Our GARP screen captures stocks with stellar growth profiles but without
extremely elevated or discounted valuations. Our screen includes 47 Russell 1000
stocks that rank in the top 20% of growth within their sector based on earnings and
sales but do not carry top or bottom quintile valuations within their sectors. The median
stock in the screen is expected to generate similar EPS and sales growth in 2020 as a
pure growth strategy, but trades at a lower valuation that is similar to the broad Russell
1000 median.
2. Dividend yield and growth: Our sector-neutral dividend yield and growth basket
(GSTHDIVG) is one way for investors with a longer-term investment horizon to collect a
premium yield while positioning for a Value rotation. The basket consists of 50 S&P 500
stocks with a combination of high dividend yields and strong expected dividend growth.
Compared with the typical S&P 500 stock, the median basket constituent offers a 140
bp higher dividend yield (3.3% vs. 1.9%), 2x the annual DPS growth through 2021 (9%
vs. 5%), a modestly higher payout ratio (41% vs. 32%), and a dramatically lower P/E
multiple (12x vs. 18x).
25 November 2019 21
Goldman Sachs
The world according to GARP (Growth at a Reasonable Price)
Our GARP screen captures stocks with above-average growth profiles but without
extremely elevated or discounted valuations. Our methodology screens Russell 1000
stocks based on a variety of growth and valuation measures relative to sector peers. We
expect the medium-term US economic environment will continue to support growth
stocks. However, history shows that firms with extremely elevated valuations rarely
grow into their multiples. The shares typically lag the market regardless of the
magnitude of their eventual realized sales growth. Simply put, most highly-valued
“growth” stocks never grow into their premium valuations. This consistent pattern
represents a serious risk to many highly valued software stocks that are favored by
many growth investors. In addition, the exceptionally wide degree of valuation
dispersion today leaves us particularly wary of pure growth strategies that ignore
valuation multiples.
Since 2016, GARP returns have been sandwiched between those of Value and
Growth stocks. While Growth and Value factors have posted alternating
outperformance in recent years, our GARP list has outperformed the duo’s laggard and
underperformed the leader in any given time period (see Exhibit 39). The GARP
construction methodology is designed to insulate the strategy from sharp growth/value
factor rotations.
Growth is the primary criterion in our GARP screen, and we filter for it based on a
combination of earnings, sales, and EBITDA growth metrics. Stocks on the list each
rank in the top 20% of their sector growth based on an average of trailing and forward
sales and EPS growth and long-term expected growth. We remove stocks that
consensus forecasts will have declining revenues in 2020. We also exclude firms with
top-quintile earnings growth volatility during the past 10 years. Our recent work showed
that stocks with the most volatile EBITDA growth trade at lower valuations and
underperform sector peers on average.
After identifying the firms with the strongest growth profiles, we then exclude
stocks with extremely high or extremely low valuations. Similar to our growth
screen, we rank stocks relative to peers on a variety of valuation metrics including P/E,
EV/EBITDA, EV/Sales, P/B, and FCF Yield. We exclude stocks that rank in the top 20% of
valuations in their sectors. To avoid “value traps” or firms with secular headwinds that
might not be otherwise captured in the screen, we also exclude stocks ranking in the
bottom 20% of their sectors on valuations (see Exhibit 38).
The 47 stocks in our GARP list represent the intersection of our screens for strong
secular growth and reasonable valuations. The median GARP stock is forecast to
grow EPS and sales only modestly slower than the median of a pure growth strategy,
yet it trades at a similar valuation to the Russell 1000 median (P/E of 18x for both; see
Exhibit 41). Although stocks are screened on growth and value relative to sector peers,
the final list is not sector neutral. The screen’s largest sector weights are in Industrials
(23%), Consumer Discretionary (21%), and Financials (11%) (see Exhibit 40).
25 November 2019 22
Goldman Sachs
Exhibit 38: Stocks in the top growth quintile and middle three quintiles of value are included in our GARP screen
as of November 21, 2019
Russell 1000 stocks by growth and value percentile

100
Value percentile within sector
80
60
Middle 60%
GARP
of Value stocks
40
20
Top 20%
of Growth
0
0 10 20 30 40 50 60 70 80 90 100
Growth percentile within sector
Exhibit 39: Performance of our GARP list since 2016 Exhibit 40: GARP holds the largest sector weight in Industrials
rebalanced monthly; as of November 21, 2019 as of November 21, 2019
R1000 R1000
120 Growth Value GARP
115
Value Indexed Industrials 10 % 10 % 23 %
(low vs.high)
performance Consumer Discretionary 14 6 21
since 2016
110 Financials 3 24 11
Information Technology 39 6 9
105
Health Care 15 13 9
GARP
100
(vs. S&P 500)
Energy 0 8 6
Utilities 0 7 6
95
Communication Services 12 8 6
90 Consumer Staples 5 9 4
Growth Real Estate 2 5 2
85 (high vs. low)
Materials 1 4 2
80 Total 100 % 100 % 100 %
2016 2017 2018 2019 2020
Source: Goldman Sachs Global Investment Research Source: FactSet, Goldman Sachs Global Investment Research
25 November 2019 23
Goldman Sachs
Exhibit 41: Russell 1000 stocks with top quintile growth within sector trading at modest valuation within sector
GROWTH VALUE
Growth Value
2020 Long %-ile Absolute %-ile
Mkt YTD Growth term within EV/ EV/ Fwd FCF within
Company Ticker cap (bn) return EPS Sales growth sector Sales EBITDA P/E Yield sector
COMMUNICATION SERVICES
Alphabet Inc. GOOGL $783 24 % 15 % 18 % 12 % 92 3.7x 13x 25x 3.4 % 51
Cinemark Holdings CNK 4 (4) 8 1 14 90 2.0 11 14 6.9 30
Charter Communications CHTR 105 67 89 6 48 88 3.9 12 40 4.0 46
CONSUMER DISCRETIONARY
MGM Resorts Intl MGM 17 33 144 2 21 90 2.7 13 22 5.7 44
Booking Holdings BKNG 80 9 12 7 13 89 5.2 13 17 5.7 57
Tempur Sealy International TPX 5 102 113 16 37 88 1.9 14 17 4.6 54
O'Reilly Automotive ORLY 33 26 11 6 14 87 3.6 17 22 3.7 76
Tractor Supply TSCO 12 17 11 7 12 85 1.5 15 19 4.6 54
Lowe's Companies LOW 90 29 17 3 19 84 1.5 17 18 2.5 62
LKQ Corp. LKQ 11 47 12 2 14 83 1.2 12 14 8.5 22
Ulta Beauty Inc. ULTA 13 (7) 11 9 11 82 1.8 12 18 5.1 49
Royal Caribbean Cruises RCL 25 24 11 8 10 81 3.2 10 12 1.4 45
Advance Auto Parts AAP 11 1 14 2 15 81 1.3 14 18 5.1 38
CONSUMER STAPLES
Estee Lauder Companies EL 43 49 11 8 11 94 2.7 13 31 4.0 79
Hershey Co. HSY 22 40 7 3 8 82 3.2 13 24 6.3 70
ENERGY
National Oilwell Varco NOV 8 (15) 465 5 167 98 1.2 62 29 2.7 52
Concho Resources CXO 15 (29) 48 9 10 89 4.1 5 20 (4.3) 64
Cimarex Energy XEC 5 (23) 22 7 24 83 2.7 4 10 (2.7) 42
FINANCIALS
Willis Towers Watson WLTW 24 26 10 NM 13 92 NM NM 17 NM 80
LPL Financial Holdings LPLA 7 49 125 NM 15 85 NM NM 13 NM 78
American Express AXP 99 26 11 NM 10 84 NM NM 14 NM 79
Travelers Companies TRV 35 14 13 NM 11 83 NM NM 13 NM 61
Signature Bank SBNY 7 23 1786 NM 10 81 NM NM 11 NM 53
HEALTH CARE
Teleflex Inc. TFX 16 36 15 7 14 91 6.7 25 28 2.0 76
Chemed Corporation CHE 7 50 712 12 11 90 3.4 24 28 3.4 60
Charles River Laboratories CRL 7 24 13 10 11 85 3.2 15 20 4.5 34
Varian Medical Systems VAR 12 15 15 10 10 83 3.2 19 24 2.7 55
INDUSTRIALS
L3Harris Technologies LHX 44 50 15 6 23 98 2.6 21 18 2.1 75
Jacobs Engineering Group JEC 13 61 16 6 16 95 1.0 13 17 (1.2) 49
Lockheed Martin LMT 110 52 12 6 13 95 2.0 14 17 6.1 66
Quanta Services PWR 6 39 20 7 14 92 0.6 7 11 (4.1) 22
Old Dominion Freight Line ODFL 15 55 341 6 10 89 3.5 12 23 3.6 76
Crane Co. CR 5 16 192 2 5 88 1.7 9 13 5.7 26
Deere & Co. DE 55 20 11 3 13 88 2.7 12 17 (0.5) 71
Flowserve Corp. FLS 6 30 13 4 16 86 1.8 14 20 3.6 68
AGCO Corporation AGCO 6 44 10 3 14 85 0.8 9 15 4.6 23
Carlisle Companies CSL 9 58 25 4 15 84 2.0 11 18 7.7 40
Raytheon Co. RTN 60 43 10 7 10 82 2.1 14 17 5.4 57
INFORMATION TECHNOLOGY
Ubiquiti Inc. UI 13 97 201 10 9 91 10.3 20 32 3.4 75
EPAM Systems, Inc. EPAM 11 77 2 22 21 90 4.3 26 34 2.1 58
Fiserv Inc. FISV 78 55 26 6 20 90 5.8 33 24 2.1 60
Synopsys Inc. SNPS 21 65 11 8 14 86 5.8 27 29 2.7 52
MATERIALS
FMC Corp. FMC 13 55 13 6 11 82 3.3 13 15 (1.1) 79
REAL ESTATE
CBRE Group Inc. CBRE 18 37 9 NM 10 93 NM NM 14 NM 24
UTILITIES
Sempra Energy SRE 40 39 17 NM 9 89 NM 14 22 (1.5) 73
Evergy Inc. EVRG 15 17 8 NM 7 84 NM 12 20 3.5 32
AES Corp. AES 12 32 8 NM 9 82 NM 10 13 1.9 36
List median $15 33 % 13 % 6% 13 % 88 2.7x 13x 18x 3.5 % 55

Russell 1000 median 11 25 7 5 8 50 2.8 12 18 3.9 50
Top growth quintile median 13 32 17 8 15 90 3.5 14 21 2.8 61
Bottom valuation quintile median 6 15 5 2 6 30 1.3 8 11 7.8 10
Source: Compustat, FactSet, Goldman Sachs Global Investment Research
25 November 2019 24
Goldman Sachs
Dividend yield and growth: Get paid while you wait
Our sector-neutral Dividend Growth basket (GSTHDIVG) is one way for portfolio
managers with a longer-term investment horizon to get paid a premium yield
while positioning for a Value rotation. The basket consists of 50 S&P 500 stocks with
a combination of high dividend yields and strong expected dividend growth. Compared
with the typical S&P 500 stock, the median basket constituent offers a 140 bp higher
dividend yield (3.3% vs. 1.9%), 2x the annual DPS growth through 2021 (9% vs. 5%), a
modestly higher payout ratio (41% vs. 32%), and a dramatically lower P/E multiple (12x
vs. 18x).
Exhibit 42: Snapshot of our Dividend Growth basket (GSTHDIVG)

Median stock fundamentals
YTD 2020E growth Fwd Payout Div 2019-'21
Basket Ticker return EPS Sales P/E ratio yield Div CAGR
Dividend Growth GSTHDIVG 28 % 4% 2% 12 x 41 % 3.3 % 9%
S&P 500 SPX 26 8 4 18 32 1.9 5
Source: Bloomberg, FactSet, Goldman Sachs Global Investment Research
Stocks with the highest dividend yields remain historically cheap. The valuation gap
between high and low dividend yield stocks recently narrowed from the widest level in
at least 40 years (Exhibit 43). On a sector-neutral basis, the 20% of S&P 500 companies
with the highest dividend yields currently trade at roughly half the consensus forward
P/E valuation as the 20% of stocks with the lowest yields (13x vs. 23x). Other metrics,
such as EV/Sales and Price/Book, also show an unusually large valuation discount for
high dividend stocks. Historically, our long/short dividend yield factor has returned 17%
during the 12 months following past valuation discounts of this magnitude (Exhibit 44).
Exhibit 43: High dividend yield stocks trade at near-record discount Exhibit 44: Current valuation gap suggests high 12-month return
1.1 25 pp
High vs. low dividend yield forward return
High dividend Current High vs. low dividend yield stock

Relative P/E yield stocks
20 pp relative P/E valution and
1.0 high vs. low dividend yield stocks more expensive 16.9
forward 12-month returns
(sector-neutral) 80th %ile
15 pp
0.9
10 pp
0.8
3.7 4.0
Average 5 pp Median
0.7 1.1
return
0 pp (2.9)
0.6 0.57x
(5)pp
0.5 20th %ile
0.51x 0.50x (10)pp
<0.6x 0.6x to 0.7x 0.7x to 0.8x 0.8x to 0.9x >0.9x
0.4 (Freq=5%) (11%) (38%) (41%) (5%)
1980 1985 1990 1995 2000 2005 2010 2015 2020
Relative P/E ratio of high vs. low dividend yield stocks
Source: Compustat, FactSet, Goldman Sachs Global Investment Research Source: Compustat, Goldman Sachs Global Investment Research
Because our dividend yield and growth basket is constructed using a combination
of dividend yield and growth, the basket’s relative returns have been less
negatively correlated with growth stocks than traditional yield strategies. The
25 November 2019 25
Goldman Sachs
basket has also been less correlated with our Momentum factor than stocks with the
highest dividend yields, suggesting the basket is less likely to incorporate laggards with
high dividend yields due to weak share price performance (see Exhibit 45).
Exhibit 45: Dividend yield and growth factor correlations
Trailing 3-year
correlation
Low vs. High Valuation
with long/short
equity factors
Dividend Growth
Leaders vs. Laggards vs. S&P 500
High vs. Low

Dividend Yield
High vs. Low Growth

Higher
correlation
(1.0) (0.5) 0.0 0.5 1.0

Source: Compustat, Goldman Sachs Global Investment Research
The Dividend Growth basket has outperformed stocks with the highest dividend
yields by 20 pp since the start of 2016. The median stock in our Dividend Growth
basket still trades at a 35% discount to S&P 500 on forward P/E – nearly the largest
valuation discount in the basket’s 13-year history (see Exhibit 47). Basket constituents
with 2021E cash return on cash invested yield above 5%: M, KSS, SPG, ABBV, T, IBM,
and IPG (see Exhibit 48).
Exhibit 46: Dividend growth stocks have outperformed the highest Exhibit 47: Median Dividend Growth stock trades at a near-record
dividend yield stocks discount to S&P 500
as of November 21, 2019 as of November 21, 2019
118 10 %
Dividend growth
116 5%
Dividend Growth basket expensive
114 (GSTHDIVG)
vs. S&P 500 0%
112
110 (5)%
Indexed performance
108 (10)%
Avg: (13)%
106
(15)%
104
(20)%
102
100 (25)%
Highest dividend
98 (30)%
Relative forward P/E
yield stocks
vs. S&P 500 Dividend Growth basket
96
(35)% <GSTHDIVG> vs. S&P 500
94 (35)%
(40)%
92
2007 2009 2011 2013 2015 2017 2019 2021
Dec-15 Dec-16 Dec-17 Dec-18 Dec-19
Source: Compustat, Goldman Sachs Global Investment Research Source: FactSet, Goldman Sachs Global Investment Research
25 November 2019 26
Goldman Sachs
Exhibit 48: Constituents of our Dividend Growth basket (GSTHDIVG)

2021E Cash
2020E 2019-2021 Return on
YTD Mkt cap NTM 2020E growth Payout Dividend Dividend Cash
Company Ticker Return ($ bn) P/E EPS Sales Ratio Yield CAGR Invested
COMMUNICATION SERVICES
AT&T Inc. T 40 % $275 10 x 2% 0% 56 % 5.5 % 2% 5.6 %
Interpublic Grp of Cos. IPG 11 9 11 5 4 48 4.7 10 5.1
Verizon Communications VZ 11 247 12 3 2 50 4.1 2 4.2
Omnicom Group Inc. OMC 9 17 13 4 2 42 3.4 4 3.6
Viacom Inc. VIAB (7) 8 6 2 3 19 3.4 (0) 3.4
CONSUMER DISCRETIONARY
Macy's Inc. M (48)% $5 6x (12)% (0)% 59 % 10.3 % (0)% 10.3 %
Kohl's Corp. KSS (26) 7 10 (1) 1 56 6.2 9 6.7
Wynn Resorts, Limited WYNN 24 13 23 45 9 77 3.6 14 4.1
Darden Restaurants DRI 17 14 17 8 4 54 3.3 14 3.7
Best Buy Inc. BBY 39 19 13 4 2 35 3.2 12 3.5
CONSUMER STAPLES
Molson Coors Brewing TAP (4)% $11 13 x (5)% (1)% 55 % 4.3 % 8% 4.3 %
Archer-Daniels-Midland ADM 8 24 14 27 3 44 3.5 4 3.5
Walgreens Boots Alliance WBA (9) 55 10 1 2 31 3.1 4 3.2
Kroger Co. KR (1) 21 12 6 2 29 2.5 10 2.7
ENERGY
Valero Energy Corp. VLO 37 % $41 11 x 92 % 15 % 39 % 4.1 % 11 % 4.5 %
Phillips 66 PSX 42 53 11 20 7 33 3.3 11 3.7
FINANCIALS
Huntington Bancshares HBAN 27 % $15 11 x 2% NM 46 % 4.4 % 11 % 4.9 %
Citizens Financial Group CFG 33 17 10 2 NM 36 4.3 15 4.7
KeyCorp. KEY 33 19 10 13 NM 40 4.0 10 4.5
Unum Group UNM 5 6 5 7 NM 20 4.0 11 4.5
Comerica Inc. CMA 3 10 10 (10) NM 39 4.0 4 4.2
Morgan Stanley MS 27 81 10 3 NM 27 3.2 18 3.7
HEALTH CARE
AbbVie Inc. ABBV (1)% $128 9x 10 % 6% 51 % 5.5 % 10 % 6.0 %
Gilead Sciences GILD 8 83 9 (0) 1 36 4.1 8 4.4
Pfizer Inc. PFE (10) 209 14 (7) (4) 54 4.0 5 4.2
Cardinal Health CAH 27 16 11 (0) 5 38 3.5 1 3.5
Amgen Inc. AMGN 21 137 15 10 9 38 2.8 10 3.1
Bristol-Myers Squibb BMY 13 133 11 33 73 31 3.0 2 3.0
Eli Lilly & Co. LLY 1 111 18 14 6 41 2.5 10 2.7
INDUSTRIALS
Eaton Corp. ETN 36 % $38 16 x 4% (1)% 49 % 3.4 % 8% 3.7 %
Delta Air Lines DAL 14 36 8 2 4 23 3.1 13 3.5
Cummins Inc. CMI 40 29 14 (13) (8) 40 3.0 10 3.3
Caterpillar Inc. CAT 16 81 14 (2) (3) 40 3.0 11 3.3
Snap-on Inc. SNA 11 9 13 4 2 34 2.8 10 3.0
INFORMATION TECHNOLOGY
International Bus. Machines IBM 23 % $119 10 x 4% 3% 50 % 5.0 % 5% 5.3 %
Broadcom Inc. AVGO 27 125 14 10 5 48 4.0 13 4.5
Seagate Technology STX 60 16 11 4 (0) 50 4.4 1 4.4
HP Inc. HPQ (2) 29 9 1 (1) 32 3.6 7 3.8
Hewlett Packard Enterprise HPE 32 22 10 5 1 27 3.0 17 3.7
Texas Instruments TXN 26 108 25 (3) (1) 78 3.2 15 3.7
NetApp Inc. NTAP 5 14 13 5 (0) 42 3.4 12 3.7
Cisco Systems Inc. CSCO 6 190 14 5 0 43 3.3 8 3.6
Corning Inc. GLW (3) 22 17 7 1 47 3.1 10 3.4
DXC Technology DXC (32) 9 7 (3) (2) 16 2.5 8 2.7
Skyworks Solutions SWKS 46 17 15 7 4 27 1.9 12 2.1
MATERIALS
Eastman Chemical EMN 9% $11 10 x 11 % 2% 32 % 3.5 % 8% 3.8 %
REAL ESTATE
Simon Property Group SPG (8)% $45 12 x 5% NM 68 % 5.9 % 5% 6.2 %
Regency Centers REG 13 11 16 3 NM 59 3.8 5 4.0
UTILITIES
DTE Energy Co. DTE 14 % $23 19 x 6% NM 61 % 3.3 % 7% 3.6 %
Public Service Enterprise Grp PEG 19 31 18 6 NM 55 3.3 6 3.5
Dividend Growth <GSTHDIVG> Median 13 % $22 12 x 4% 2% 41 % 3.4 % 9% 3.7 %

S&P 500 Median 25 23 18 8 4 32 2.0 5 2.1
Source: Bloomberg, FactSet, Goldman Sachs Global Investment Research
25 November 2019 27
Goldman Sachs
Sector allocation
Our sector recommendations for 2020 are broadly consistent with a barbell
strategy of value and growth. As noted previously, the combination of modest
economic growth and elevated valuation dispersion creates an uncertain outlook for
Growth vs. Value returns next year. At the sector level, we recommend investors remain
overweight Information Technology and Industrials, which offers a mix of both growth
and value characteristics. We recommend underweight allocations to Utilities and
Consumer Staples, which are negatively correlated with economic growth and trade at
high valuations relative to history. We also remain underweight Consumer Discretionary,
Health Care, and Energy (see Exhibit 49).
Exhibit 49: Goldman Sachs US Portfolio Strategy sector recommendations

Sector weight Consensus Fund tilt
Goldman Sachs Current bottom-up Valuation Hedge Large-cap
recommended S&P 500 YTD 2020 growth Fwd 10-year Dividend funds vs. mutual funds vs.
Sector sector weightings weight return Sales EPS P/E Z-Score yield Russell 3000 benchmarks
Information Technology 23 % 42 % 8% 10 % 21 x 2.5 1.4 % (235)bp (9)bp

Overweight
Industrials 9 28 5 15 17 (0.3) 1.9 204 83
Financials 13 % 27 % NM 4% 13 x (0.5) 2.1 % (387)bp 17 bp

Communication Services 10 29 10 6 18 (1.0) 1.3 135 91
Neutral
Real Estate 3 26 NM 12 22 (0.3) 3.1 (274) (196)
Materials 3 19 4 17 18 (1.5) 2.1 138 (6)
Health Care 14 % 15 % 6% 6% 16 x (0.3) 1.8 % 449 bp 172 bp

Consumer Discretionary 10 21 6 14 22 0.2 1.4 340 59
Consumer Staples Underweight 7 23 5 6 20 0.2 2.8 (448) (130)
Energy 4 7 7 16 18 (1.3) 4.1 112 31
Utilities 3 22 NM 5 20 0.6 3.2 (33) (111)
S&P 500 100 % 26 % 6% 9% 18 x 1.4 1.9 % NM NM
A rebound in manufacturing activity and easing trade tensions should support
Industrials and Information Technology outperformance in 2020. Since 1975,
Industrials (excluding GE) has been the best performing sector when the ISM
Manufacturing Index rises from its trough to 50 (see Exhibit 50). Last month, the ISM
registered 48.3, halting its six-month decline and signaling a rebounding manufacturing
economy. Our overweight Industrials recommendation is consistent with current mutual
fund and hedge fund positioning.
Tailwinds to Information Technology performance include high and stable revenue

growth (particularly within Software) and 20%+ margins across all industry
groups within the sector. Although Tech valuations are elevated compared with other
sectors, the current level appears in line with relative profitability and below the 30-year
average (see Exhibit 51). Our Tech overweight recommendation contrasts with
underweight positioning by both hedge funds and mutual funds.
25 November 2019 28
Goldman Sachs
Exhibit 50: Manufacturing rebound benefits Industrials Exhibit 51: Sector valuations in line with profitability
75 25 % 9x
Industrials (ex. GE) year/year Info Tech
70 20 % 8x S&P 500 sector Cons.
excess return vs. S&P 500
(right axis)
return on equity Discretionary
65 15 % 7x
vs. price/book valuation
60 6x
10 % Cons. Staples
Price / book multiple

55 5x
5% Industrials
50 S&P 500 Health Care
4x Comm
0%
45 Services Real Estate
3x
(5)% Utilities
40 Energy
2x Materials
35 (10)%
ISM manufacturing index 1x Financials
30 (left axis) (15)% R² = 0.96
0x
25 (20)% 5% 10 % 15 % 20 % 25 % 30 % 35 % 40 %
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Consensus forward 12-month ROE
Source: ISM, FactSet, Goldman Sachs Global Investment Research Source: FactSet, Goldman Sachs Global Investment Research
We downgrade Consumer Staples to underweight from neutral, and remain

underweight Consumer Discretionary. A strong consumer has supported US
economic growth during the past few years and explains why we believe the US
economic expansion will continue in 2020. However, limited labor market slack and
already record-high consumer confidence suggest acceleration in consumer expenditure
growth is unlikely. While rising wages support consumer spending, it also represents a
significant margin risk to companies where labor costs represent a large share of sales,
which includes many consumer-facing stocks. As a result, Consumer Staples and
Consumer Discretionary earnings are among the most vulnerable to rising wages and
have risk of negative EPS revisions. Consumer Staples also generally lags when
economic growth improves (see Exhibit 52). For Consumer Discretionary, risks include
record low short interest and regulatory scrutiny of AMZN, which alone comprises 32%
of the sector market cap.
We reiterate our underweight recommendations in Health Care, Energy, and
Utilities. Health Care stocks have been the most directly affected by policy uncertainty,
a trend we expect will persist next year as we approach the 2020 US presidential
election (see Exhibit 53). Our commodity strategists’ forecast of constrained long-term
oil prices suggests investors should underweight the Energy sector. Moreover, investor
positioning in Energy is already elevated, and although the sector trades with low
valuations, the multiples are justified by the sector’s low returns on equity. Utilities
generally underperform when growth improves and the sector trades 0.6 standard
deviations above its 10-year average vs. the S&P 500 across a range of valuation
metrics.
25 November 2019 29
Goldman Sachs
Exhibit 52: Bond proxies lag as economic growth improves Exhibit 53: Managed Care vs. election probabilities
monthly since 2002 as of November 21, 2019
Financials 115 70%

Correlation of Managed Care
Materials S&P 500 sector 110 performance 60%
Discretionary excess returns with vs. S&P 500
Industrials changes in US 105
(left axis)
economic growth 50%
Real Estate
100
Info Tech
40%
Energy Outperforms as 95
economic growth
Comm. Services decelerates 30%
Outperforms as 90
Utilities Prediction market odds
economic growth
Health Care accelerates of progressive candidate 20%
85
winning 2020 Democratic nomination
Staples (right axis)
80 10%
(0.4) (0.3) (0.2) (0.1) 0.0 0.1 0.2 0.3 May-19 Jul-19 Sep-19 Nov-19 Jan-20
Correlation with change in US Current Activity Indicator
Source: FactSet, Goldman Sachs Global Investment Research Source: PredictIt, Goldman Sachs Global Investment Research
We maintain our neutral view on Communication Services on the basis of rising

regulatory risk. FB and GOOGL face intense scrutiny from Democrats and Republicans
at both the state (attorneys general) and federal levels (DoJ and FTC). These two stocks
account for 45% of the sector’s market capitalization. While antitrust lawsuits typically
take years to resolve, they ultimately result in lower valuation between lawsuit filing and
resolution given the slower sales growth following resolution. Although the growth
prospects of many Communication Services companies remain attractive, the valuation
overhang from regulatory uncertainty will likely continue to grow and weigh on the
sector’s performance (see Exhibit 54).
We also remain neutral on Financials, Materials, and Real Estate. Financials

performance has closely tracked the level of global GDP growth since 2015. Although
improving global activity should support the sector, Financials has already priced in most
of our economists’ expected acceleration in growth (see Exhibit 55). Limited further
upside to interest rates and low profitability suggests that valuations will likely remain
flat next year. The combination of improved economic activity and muted commodity
returns presents a mixed outlook for Materials. Lastly, Real Estate, unlike other
defensive sectors, generally outperforms when economic growth improves.
Exhibit 54: “Big Tech” has recently lagged S&P 500 Exhibit 55: Financials returns reflect growth acceleration
104 65% 115 7%

103 Prediction market odds of
a progressive candidate 60% 110
102 winning 2020 Democratic nomination Financials vs. S&P 500 6%
101 (right axis) 55%
105
indexed performance
100 (left axis)
50% 5%
99 100
98 45%
95 4%
97 40%
96
90
35% 3%
95
94 FB, AMZN, GOOGL 30% 85
93 indexed performance Global Current 2%
vs. S&P 500 25% 80
92 Activity Indicator
(left axis)
91 20% (right axis)
75 1%
May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
2010 2012 2014 2016 2018 2020
Source: FactSet, PredictIt, Goldman Sachs Global Investment Research Source: FactSet, Goldman Sachs Global Investment Research
25 November 2019 30
Goldman Sachs
A century of women’s suffrage: How female portfolio managers vote AUM
The year 2020 marks the 100th anniversary of the ratification of the 19th
Amendment to the US Constitution: “The right of citizens of the United States to
vote shall not be denied or abridged by the United States or by any State on
account of sex.” While women have voted for a century, their progress in the labor
force has been uneven. Our Global Markets Institute colleagues found that, although
women account for 40% of all employees at US-headquartered S&P 1500 companies,
they account for only 5% of CEOs and 21% of directors (see Closing the Gender Gaps
2.0, October 23, 2019).
The gender composition of portfolio managers within the mutual fund industry
also shows a strong skew towards men. Of the 528 large-cap mutual funds we
analyzed in our recent Mutual Fundamentals report, only 15 (3% of total) have all-female
fund manager teams and collectively they manage just 1% of total assets. In contrast,
409 fund teams (77% of total) consist of only male portfolio managers and these funds
account for 64% of domestic equity mutual fund assets.
In honor of the centennial of women’s suffrage, we analyze the performance and

holdings of large-cap mutual funds that have female portfolio managers. We focus
on funds that have at least 1/3 of their portfolio manager positions held by women
(“female-managed funds”). Of our universe of 528 large-cap US mutual funds with $2.5
trillion in assets under management (AUM), 73 funds (14% of total) with $196 billion in
AUM (8%) exceeded this threshold (see Exhibits 56 and 57).
Exhibit 56: Large-cap mutual funds by gender of PMs Exhibit 57: Female-managed (1/3+) funds have 8% share of mutual
holdings as of September 30, 2019 fund AUM
holdings as of September 30, 2019
450 1800
409
$1,586
400 1600
BY NUMBER BY ASSETS
350 1400 Mutual fund AUM
Large-cap mutual funds
300 by gender of portfolio managers 1200
by gender of portfolio managers
($ billions)
250 1000 $908
200 800
150
"Female-managed" 600 "Female-managed"
119
100 73 400
$196
50 200
15 $15
0 0
No women 1 or more 33% or more All women No women 1 or more 33% or more All women
Number/share of female portfolio managers Number/share of female portfolio managers
Source: FactSet, EPFR, Goldman Sachs Global Investment Research Source: FactSet, EPFR, Goldman Sachs Global Investment Research
During the past three years, female-managed funds have delivered similar hit rates
of outperformance and risk-adjusted returns compared with all other large-cap
mutual funds. Since the start of 2017, an average of 39% of female-managed funds has
outperformed its benchmark annually compared with 41% for all other funds. During the
past three years, return volatility (12) and Sharpe ratios (2.0) have also been almost
identical across all-male, all-female, and mixed-gender teams. Academic literature also
finds no discernible differences between the performance of male and female portfolio
25 November 2019 31
Goldman Sachs
managers despite significant differences in risk-aversion and trading behavior3. During

the past 12 months, investor outflows from the median active equity mutual fund have
totaled 6% of AUM irrespective of the gender composition of fund managers.
Men are from Mars, Women are from Venus according to the best-selling
psychology book from the 1990s. In the mutual fund galaxy, the epigram would be
“Women invest in Tech, Men invest in Financials”. At the sector-level, Information
Technology and Financials are the biggest sources of disagreement between
female-managed funds and all other large-cap mutual funds. Relative to style
benchmark, the average female-managed fund is 89 bp overweight Information
Technology while all other mutual funds are underweight the sector by 39 bp (see
Exhibit 58). Outside of Information Technology, female-managed funds allocate a larger
share of their portfolios to defensive sectors, such as Utilities and Consumer Staples,
compared with all other funds. Female-managed mutual funds are 88 bp underweight
Financials relative to their benchmark. In contrast, Financials constitutes the largest
sector overweight for mutual funds with few or no female portfolio managers (+102 bp).
In terms of sector allocation, female mutual fund managers display similar tilts as
hedge fund managers. Although employment in the hedge fund industry is

overwhelmingly male, their underweight allocation in Financials parallels
female-managed mutual fund positioning. Hedge funds have been underweight the
sector vs. the Russell 3000 for 39 consecutive quarters since 3Q 2009 (see Hedge Fund
Trend Monitor, Nov. 18, 2019).
Exhibit 58: Female-managed funds and all other mutual funds disagree most on Info Tech and Financials
250 bp
Female-managed funds
33%+ female PM funds vs. benchmark
200 bp Sector allocations overweight vs. other

of female-managed
150 bp
mutual funds vs.
Underweight
100 bp all other MFs Health vs. other
Care
Info Consumer
50 bp Utilities
Discretionary
Tech
Materials
(bp)
0 bp
Comm Industrials
(50)bp Consumer Services
Energy
Real Staples
(100)bp Estate Financials
(150)bp
(200)bp
(250)bp
(150)bp (100)bp (50)bp 0 bp 50 bp 100 bp 150 bp
All other large-cap MFs vs. benchmark (bp)
Source: FactSet, EPFR, Goldman Sachs Global Investment Research
3
“Mutual Fund Managers: Does Gender Matter?” The Journal of Business and Economic Studies 8: 1-17
(2002), Richard Bliss and Mark Potter; “Sex Matters: Gender Bias in the Mutual Fund Industry,” Management
Science, page 1–25 (2018), A. Niessen-Ruenzi and S. Ruenzi.
25 November 2019 32
Goldman Sachs
Within Information Technology, Software accounts for almost all the difference in
allocation between female-managed mutual funds and all other mutual funds.
Overweight exposure to Software (+112 bp) has contributed to female-managed fund
outperformance YTD. The difference in Financials allocation is driven primarily by an
underweight in Capital Markets. Similar to their sector preferences, female-managed
funds tend to tilt more towards defensive and high growth industries.
However, female-managed mutual funds are also overweight industries that are
exposed to health care policy risks (Pharmaceuticals), which has likely weighed on
relative returns. Despite a slightly higher allocation to the overall Health Care sector,
female-managed funds have much lower exposure to Health Care Providers & Services
than other large-cap mutual funds (66 bp underweight vs. 36 bp overweight).
Exhibit 59: Female-managed funds tilt more towards defensive and high growth industries than all other
mutual funds
5 industries to which female-managed funds have the HIGHEST allocation vs. all other funds
Over/(under)weight vs. benchmarks

33% or more All

female PMs other funds
Industry Sector 73 funds 455 funds Diff.
Software Information Technology 141 bp 29 bp 112 bp
Pharmaceuticals Health Care 63 (3) 66
Electric Utilities Utilities 18 (47) 65
Internet & Direct Marketing Retail Consumer Discretionary 69 6 62
Multi-Utilities Utilities 0 (43) 43
5 industries to which female-managed funds have the LOWEST allocation vs. all other funds

33% or more All
female PMs other funds
Industry Sector 73 funds 455 funds Diff.
Health Care Providers & Services Health Care (66)bp 36 bp (102)bp
Capital Markets Financials (37) 44 (81)
Diversified Financial Services Financials (117) (53) (64)
Media Communication Services (3) 53 (56)
Specialty Retail Consumer Discretionary (26) 26 (51)
Source: FactSet, EPFR, Goldman Sachs Global Investment Research
At the stock-level, female-managed funds have higher relative exposure to AMZN,

AAPL, NKE, MSFT, and MRK but lower exposure to BRK.B, CMCSA, UNH, JPM, and
BKNG. Exhibits 60 and 61 show the 25 Russell 1000 stocks that female-managed funds
are most and least exposed to compared with all other large-cap mutual funds. The
median stock that female-managed funds are most exposed to has projected sales and
earnings growth of 6% and 9%, respectively, and trades at a forward P/E multiple of
19x. The median stock to which female-managed mutual funds are least exposed has
similar sales and EPS growth characteristics, but the P/E valuation is 2 points lower at
17x.
25 November 2019 33
Goldman Sachs
Exhibit 60: 25 Russell 1000 stocks that female-managed funds are most exposed to vs. all other mutual funds
holdings as of September 30, 2019; pricing as of November 21, 2019
25 Russell 1000 stocks to which female-managed funds have the HIGHEST allocation vs. all other funds
Female- All 2020E
managed other funds YTD EPS PE
Company Ticker Sector 73 funds 455 funds Diff. return growth NTM
Amazon.com, Inc. AMZN Consumer Discretionary 10 bp (58)bp 68 bp 15 % 26 % 76x
Apple Inc. AAPL Information Technology (133) (174) 42 69 11 20
NIKE, Inc. Class B NKE Consumer Discretionary 29 (6) 35 25 17 30
Microsoft Corporation MSFT Information Technology (17) (52) 34 49 13 27
Merck & Co., Inc. MRK Health Care 23 (9) 32 14 9 16
Hartford Financial Services Group, Inc. HIG Financials 24 (1) 25 41 2 12
AT&T Inc. T Communication Services (35) (58) 23 40 2 10
QUALCOMM Incorporated QCOM Information Technology 23 1 22 54 24 21
Molson Coors Brewing Company Class B TAP Consumer Staples 24 2 22 (4) (5) 13
M&T Bank Corporation MTB Financials 18 (1) 19 16 (1) 12
salesforce.com, inc. CRM Information Technology 32 14 18 19 9 58
Eli Lilly and Company LLY Health Care 4 (14) 17 1 14 18
Zebra Technologies Corporation Class A ZBRA Information Technology 20 3 17 52 8 18
Coca-Cola Company KO Consumer Staples (16) (33) 17 15 7 24
NextEra Energy, Inc. NEE Utilities 9 (8) 16 38 8 28
Campbell Soup Company CPB Consumer Staples 16 (0) 16 47 (1) 19
PayPal Holdings Inc PYPL Information Technology 21 5 16 22 14 31
Bristol-Myers Squibb Company BMY Health Care 23 7 15 13 33 11
Dominion Energy Inc D Utilities 6 (9) 15 20 5 19
Adobe Inc. ADBE Information Technology 26 11 15 32 24 32
Broadcom Inc. AVGO Information Technology 4 (11) 15 27 10 14
International Business Machines IBM Information Technology (9) (23) 14 23 4 10

Netflix, Inc. NFLX Communication Services (2) (16) 13 16 63 62
General Mills, Inc. GIS Consumer Staples 11 (2) 13 40 3 15
Edwards Lifesciences Corporation EW Health Care 16 4 12 59 10 41
Median 16 bp (6)bp 17 bp 25 % 9% 19x
Exhibit 61: 25 Russell 1000 stocks that female-managed funds are least exposed to vs. all other mutual funds
holdings as of September 30, 2019; pricing as of November 21, 2019
25 Russell 1000 stocks to which female-managed funds have the LOWEST allocation vs. all other funds
Female- All 2020E
managed other funds YTD EPS PE
Company Ticker Sector 73 funds 455 funds Diff. return growth NTM
Berkshire Hathaway Inc. Class B BRK.B Financials (123)bp (61)bp (63)bp 6% 5% 20x
Comcast Corporation Class A CMCSA Communication Services (16) 25 (41) 32 11 13
UnitedHealth Group Incorporated UNH Health Care (22) 10 (32) 12 10 17
JPMorgan Chase & Co. JPM Financials (38) (10) (28) 37 1 13
Booking Holdings Inc. BKNG Consumer Discretionary (13) 13 (26) 9 12 17
Visa Inc. Class A V Information Technology 17 43 (26) 37 15 29
Intel Corporation INTC Information Technology (59) (37) (22) 27 2 12
General Electric Company GE Industrials (14) 8 (22) 59 9 18
U.S. Bancorp USB Financials (10) 9 (19) 33 2 14
Exxon Mobil Corporation XOM Energy (75) (56) (18) 7 40 21
CVS Health Corporation CVS Health Care (15) 2 (17) 18 2 11
TJX Companies Inc TJX Consumer Discretionary (2) 14 (16) 34 9 21
Accenture Plc Class A ACN Information Technology (24) (9) (15) 41 7 25
Abbott Laboratories ABT Health Care (29) (14) (15) 18 11 24
Cigna Corporation CI Health Care (12) 2 (14) 6 10 11
Sherwin-Williams Company SHW Materials (8) 6 (14) 46 15 24
FedEx Corporation FDX Industrials (12) 2 (14) (5) (3) 12
CBRE Group, Inc. Class A CBRE Real Estate (6) 8 (14) 37 9 14
Citigroup Inc. C Financials (2) 12 (14) 46 9 9
United Technologies Corporation UTX Industrials (16) (3) (14) 41 8 18
American Express Company AXP Financials (11) 2 (14) 26 11 14
Wells Fargo & Company WFC Financials (13) 0 (13) 21 (5) 13
Allergan plc AGN Health Care (18) (5) (12) 41 1 10
Global Payments Inc. GPN Information Technology (12) (0) (12) 73 22 25
Roper Technologies, Inc. ROP Industrials (9) 3 (12) 34 6 27
Median (13)bp 2 bp (15)bp 33 % 9% 17x
25 November 2019 34
Goldman Sachs
Blurriness to our 20/20 vision
In the Federal Reserve’s semiannual Financial Stability Report, market participants

identify a litany of risks to the continuation of the longest US economic cycle in history.
The most frequently cited potential shock to the economy was trade frictions. Market
liquidity and corporate debt were also among the top risks cited by survey respondents
(see Exhibit 62). Although not an exhaustive list of all potential market risks, these
issues will certainly weigh on the minds of investors in 2020.
In our view, in tandem with political uncertainty, trade tension with China remains
the most salient risk to the path of US equities in 2020. The prospect of a completed
trade agreement has fluctuated dramatically during the past 12 months. The GS
US-China Trade Tension Barometer (GSSRTRAD) currently implies a 68% likelihood a
deal is negotiated, the highest probability since May 2019 (see Exhibit 63). As shown in
Exhibit 64, illiquidity remains a risk, a topic we explored earlier this year (see Capturing
the illiquidity premium in US equities, April 3, 2019). Rising corporate leverage (Exhibit
65), low CEO confidence, and the sharp reduction in corporate buybacks (Exhibit 66)
represent other equity market concerns. Index concentration, ongoing antitrust

investigations, and potential new regulations constitute additional equity market risks in
2020 (see Exhibit 67). Finally, margin compression remains a risk (see Exhibit 68).
Exhibit 62: Trade frictions, liquidity, and corporate leverage are among the largest risks to the US economy
FRBNY phone survey of market and official-sector contacts from mid-August to end-September
Trade frictions
Global mon policy efficacy
Market liquidity
China economic/financial strains
Sharp equity correction
Corporate debt/credit cycle turn
US or global recession
Reserve scarcity/funding mkt vol
Higher inflation/bond tantrum
Capital flow/FX policy
Fintech risks
Brexit Risks cited in
Federal Reserve
Untested structures/strategies
market outreach survey
Passive investing bubble
Iran
Asian geopolitical uncertainty
US politics
Household debt/distribution
Benchmark rate reform
0% 10% 20% 30% 40% 50% 60% 70%
Share of contacts citing risk
Source: Federal Reserve Bank of New York, Goldman Sachs Global Investment Research
25 November 2019 35
Goldman Sachs
Exhibit 63: Uncertain US-China trade relations Exhibit 64: US equities are susceptible to bouts of illiquidity
100% 120 %
GS US-China US illiquidity ratio
90% 100 %
Implied probability of trade resolution
Trade Tension Barometer (relative to 3-year trend) Less

80% <GSSRTRAD> 80 %
liquidity
70% Dec. Aug.

60 % 2018 2019
60%
40 %
50%
20 %
40%
0%
30%
Declining
probability (20)%
20%
of a trade deal
10% (40)%
0% (60)%
Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
Source: Goldman Sachs Global Investment Research Source: Compustat, Goldman Sachs Global Investment Research
Exhibit 65: Record high corporate leverage Exhibit 66: Buyback growth has slowed sharply in 2019
70%
2.2x 12x
Median S&P 500 company excl. Financials 60%
2.0x 50%
Year/year change in
10x S&P 500 buybacks

Net leverage 40%
1.8x
Interest expense / EBIT
(left axis)
Net debt-to-EBITDA
8x 30%
1.6x
20%
1Q’19:
1.4x 6x 10% +4%
0%
1.2x
4x (10)%
Corporate 3Q’19:
1.0x (20)% tax reform
Interest 2Q’19: (12)%
coverage 2x (30)% (18)%
0.8x ratio (40)%
(right axis)
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
0.6x 0x
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2015 2016 2017 2018 2019
Source: Compustat, Goldman Sachs Global Investment Research Source: FactSet, Compustat, Goldman Sachs Global Investment Research
Exhibit 67: AMZN, FB, and GOOGL face regulatory risks Exhibit 68: Margins under pressure in 2020 from rising input costs
9%
300 bp 5 pp
AMZN, FB, and GOOGL 4Q change in S&P 500 EBIT margins
as a share of
Share of S&P 500 market cap
8% (ex. Energy, left axis)

200 bp 0 pp
S&P 500 market cap
7% (5)pp
100 bp
6% (10)pp
0 bp
5% YouGov poll: (15)pp
Should the government regulate (100)bp
4% social media companies? (20)pp
Party affiliation Should Should not (200)bp Share of NABE survey
3% Democrats 66% 18% (25)pp
respondents reporting
Republicans 58 26 rising prices less share
2% (300)bp (30)pp
2015 2016 2017 2018 2019 2020
reporting rising input costs
(4Q avg, right axis)
(400)bp (35)pp
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Note: Respondents to YouGov poll conducted March 31 - April 2, 2019 answered, “Do you think Source: Compustat, NABE, Goldman Sachs Global Investment Research
the government should or should not regulate how social media companies (e.g. Facebook and
Twitter) safeguard the personal data of their users?”
Source: FactSet, YouGov, Goldman Sachs Global Investment Research
25 November 2019 36
Goldman Sachs
2019 in review
Exhibit 69: P/E expansion explains 93% of S&P 500 YTD return Exhibit 70: Info Tech has driven 32% of S&P 500 YTD return
Sector contribution to S&P 500 YTD return
Share of S&P 500 price return contributed by Share
EPS growth P/E expansion Weight YTD of SPX
100%
Sector in SPX return return
Information Technology 20 % 42 % 32 %
31%
80% Financials 13 27 14
Communication Services 10 29 11
Industrials 9 28 10
60%
Health Care 16 15 9
93%
Consumer Discretionary 10 21 8
40% Consumer Staples 7 23 7
69% Real Estate 3 26 3
Utilities 3 22 3
20%
Materials 3 19 2
Energy 5 7 2
7%
0% S&P 500 100 % 26 % 100 %
Since Mar-09 YTD
Source: FactSet, Goldman Sachs Global Investment Research Source: FactSet, Goldman Sachs Global Investment Research
Exhibit 71: AAPL, MSFT, and FB made largest positive contributions to S&P 500 YTD return while PFE, OXY, and DD detracted the most
Top 10 contributors to S&P 500 YTD return Bottom 10 contributors to S&P 500 YTD return
Contribution Contribution
Mkt cap Total to SPX Mkt cap Total to SPX
Ticker Company weight return return Ticker Company weight return return
AAPL Apple Inc. 3.4 % 68 % 234 bp PFE Pfizer Inc. 1.2 % (10)% (12)bp
MSFT Microsoft Corp. 3.8 49 186 OXY Occidental Petroleum 0.2 (32) (7)
FB Facebook Inc. 1.5 51 78 DD DuPont 0.6 (11) (7)
GOOGL Alphabet Inc. 3.0 24 74 MMM 3M Co. 0.5 (10) (6)
JPM JPMorgan Chase 1.6 36 57 EOG EOG Resources Inc. 0.2 (15) (4)
AMZN Amazon.com Inc. 3.0 15 46 KHC Kraft Heinz 0.1 (26) (3)
MA Mastercard Inc. 0.8 51 43 ABMD ABIOMED Inc. 0.1 (43) (3)
V Visa Inc. 1.1 37 42 CXO Concho Resources 0.1 (29) (3)
T AT&T Inc. 1.0 39 39 MYL Mylan 0.1 (37) (2)
BAC Bank of America 1.1 35 38 WBA Walgreens Boots Alliance 0.3 (9) (2)
Top 10 contributors 20 % 41 % 836 bp Bottom 10 contributors 3% (14)% (50)bp
S&P 500 100 26 2605 S&P 500 100 26 2605
See all our year-ahead forecasts in one place. Visit the page.
25 November 2019 37
Goldman Sachs
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2020 US Equity Outlook - United We Fall, Divided We Rise

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2020 US Equity Outlook - United We Fall, Divided We Rise

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25 November 2019 | 4:00AM EST

2020 US Equity Outlook: United we fall, divided we rise

Speed vs. Time: Election calendar and investment horizon 7

Earnings: The cycle continues 11

Valuation: Uncertainty in an otherwise friendly macro backdrop 14

Growth vs. Value: Caught between a rock and a hard place 17

The world according to GARP (Growth at a Reasonable Price) 22

Dividend yield and growth: Get paid while you wait 25

A century of women’s suffrage: How female portfolio managers vote AUM 31

Blurriness to our 20/20 vision 35

2020 US equity outlook: United vs. divided government

Maxims in politics such as “United we stand, divided we fall” do not necessarily

Source: Goldman Sachs Global Investment Research

Investors focused on equity market implications of policies discussed on the

60% Presidency: 54%

Exhibit 4: S&P 500 earnings

Source: FactSet, Goldman Sachs Global Investment Research

Exhibit 5: S&P 500 valuation

10x -2 std. dev.

Source: Compustat, Goldman Sachs Global Investment Research

Source: Goldman Sachs Global Investment Research

Speed vs. Time: Election calendar and investment horizon

Exhibit 7: Two thirds of delegates will be pledged by mid-March

40% March 3 ("Super Tuesday"): 40%

The importance of the election calendar is apparent in options pricing. As our

S&P 500 S&P 500

Exhibit 10: SPX put-call skew over time

0.60 S&P 500 put-call skew

Source: Goldman Sachs Global Investment Research

Exhibit 11: Difference in SPX implied vol between expiry dates

1.0 Difference in SPX implied volatility

Difference in vol points

Source: Bloomberg, Goldman Sachs Global Investment Research

The US is a 50/50 nation so forecasting the outcome of a presidential race when

Source: Real Clear Politics, Goldman Sachs Global Investment Research

Earnings: The cycle continues

overly-optimistic margin assumptions, a dynamic we believe is repeating today. There

Exhibit 13: Goldman Sachs top-down forecasts

Annual S&P 500 EPS growth

Bottom-up Consensus S&P 500 4Q net 4 pp

55% S&P 500 2021 EPS

30% 27% 2.0% 189 180 171 162 153

Exhibit 20: Sensitivity of our top-down EPS forecasts

Source: Goldman Sachs Global Investment Research

Valuation: Uncertainty in an otherwise friendly macro backdrop

Cyclically adjusted P/E (CAPE) 27.4 x 89 NA NA 300 bp

Free cash flow yield 4.2 % 51 4.2 % 57 100 bp

Yield gap vs. 10-year UST 380 bp 25 NA NA 0 bp

Our year-end 2020 base case valuation forecast assumes no meaningful

Source: PolicyUncertainty.com, University of Michigan, Goldman Sachs Global Investment Research

Avg. US Economic Policy Uncertainty Avg. US Economic Policy Uncertainty

90 295 345 400 450 90 19.3 17.6 16.1 14.9

85 325 380 430 480 85 18.2 16.7 15.4 14.2

80 360 410 460 510 80 17.2 15.8 14.7 13.6

Source: Goldman Sachs Global Investment Research

Growth vs. Value: Caught between a rock and a hard place

furthers the long-term case for Value.

We recommend investors focus on Growth at a Reasonable Price (GARP): Stocks

The Value story

strong indicator of future value stock performance, and dispersion today is

The exceptionally cheap “value of Value” is also reﬂected in the extreme

Momentum (leaders vs. laggards)

0x (3) (2) (1) 0 1 2 3