'Our view is a soft landing is still the base case': Goldman Sachs exec

By Steve Gelsi

Goldman's John Waldron sees 'a big supercycle' coming in AI investment amid a 'more benign' environment

Goldman Sachs Group Inc. executive John Waldron said on Thursday that Wall Street dealmaking continues to pick up steam as clients focus on investments in artificial intelligence, even as they worry about inflation and geopolitical flare-ups.

The Federal Reserve's effort to hike interest rates overall "appears to be working," but the central bank needs to "slay that inflation dragon," Waldron said.

The environment for capital-raising, borrowing and trading for banks and corporations remains challenging, but it's been getting "more benign" and in some cases "fairly constructive," said Waldron, who is president and chief operating officer at Goldman Sachs (GS).

"Our view is a soft landing is still the base case. It seems like the most likely scenario," Waldron said at the AllianceBernstein Strategic Decisions Conference Thursday.

Clients of the investment bank and asset manager remain fixated on inflation, the U.S. economy, geopolitics and the U.S. election, as well as AI, Waldron said. He added that the U.S. will likely avoid the more severe stagflation of the 1970s.

On the geopolitical front, clients worry that one more unexpected event could push up oil prices and stoke inflation, Waldron said.

Goldman Sachs sees a "supercycle" of investment ahead in AI, he said.

As for Goldman's businesses in dealmaking and wealth management, capital markets continue to recover from multiyear lows but remain below historical norms, he said.

The investment-banking environment remains "good but not great," he said, with robust debt capital markets activity and "an enormous amount of refinancing."

Equity capital markets activity remains about 30% below the 10-year average, he said, while initial public offerings are about 50% lower.

The market for mergers and acquisitions remains "very solid," he said, but deals from private-equity firms are still muted, as are megadeals, due to more restrictive antitrust moves by regulators around the globe.

"Over time, you could see a much better M&A environment. ... I'm pretty bullish," Waldron said.

Goldman Sachs also sees growth in private credit, and that will benefit the bank in the event of a down cycle in that business because of its experience managing through difficult periods and its resources, Waldron said.

Goldman has been offering clients more "hybrid" debt options that combine elements of private debt with the syndicated loan market and other leverage options, he said.

Goldman Sachs's stock was down by 1% on Thursday. The stock has risen 16.6% in 2024, outpacing the 9.9% rise by the S&P 500 SPX.

Also read: Jamie Dimon sees potential trouble - and opportunity - in private credit

-Steve Gelsi

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05-30-24 1220ET

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