Goldman Sachs strategists, led by Peter Oppenheimer, introduced the concept of a "Postmodern" investment cycle in 2022. This cycle is characterized by distinct drivers such as AI, increased defense spending, decarbonization, and maturing demographics, which reshape investment opportunities differently from previous structural bull markets. Goldman's thesis argues for a "Fat & Flat" market rather than a secular bull market, emphasizing the growing importance of alpha over beta and a focus on the stability and sustainability of margins and earnings due to rising inflation risks, labor costs, and larger governments.
The Postmodern cycle is also marked by a new supercycle of capital expenditure (capex) driven by the alignment of virtual and physical worlds. The full potential of AI necessitates a significant upgrade to physical infrastructure, alongside increased defense spending and electrification efforts. Goldman expects a likely doubling of "Mag7" capex between 2023 and 2025. This divergence, where tech growth outpaces economic growth, explains the disconnect between company valuations and economic expansion. Goldman views the current strength of US tech profit growth as evidence of a postmodern supercycle, not a bubble, suggesting a broadening of US exceptionalism post-financial crisis.
Key beneficiaries are anticipated downstream of AI capex, particularly with trends like reshoring and declining working-age populations, where technology and AI offer critical solutions. Upstream sectors are also expected to benefit. The market environment is becoming more eclectic and less uni-factor driven, with both growth and value segments performing well simultaneously. For example, European banks have outperformed US mega-cap technology since 2023, reflecting changing conditions like stronger capital buffers and positive interest rates. This diversity creates greater potential for portfolio diversification, with geographic, sector, and factor diversification becoming crucial for alpha generation.
