Cyberattacks

Exhibit 66: Market Concentration

Levels of concentration of large-capitalization technologyrelated firms are at a record high.

ACP Herfindahl-Hirschman Index 0.65

0.60 Less Competition 0.61

0.55

0.50

0.45

0.40

0.35

0.30

1974 1979 1984 1989 1994 1999 2004 2009 2014 2019

Data through 2020. Source: Investment Strategy Group, Goldman Sachs Global Investment Research, Compustat.

Exhibit 67: S&P 500 2022 Price and Return Scenarios

The S&P 500 can still deliver mid-single-digit returns in 2022 even if the FANGMANT stocks underperform.

Remaining S&P 500 Price Return FANGMANT Price Return -10% -5% 0% 5%

0% 4635 -3% 5% 4808 1% 10% 4981 5% 15% 5154 8% 4701 -1% 4874 2% 5046 6% 5219 10% 4766 0% 4939 4% 5112 7% 5285 11% 4832 1% 5004 5% 5177 9% 5350 12%

Data as of December 31, 2021. Note: FANGMANT = Facebook/Meta, Apple, Netflix, Google/Alphabet, Microsoft, Amazon, Nvidia and Tesla. Source: Investment Strategy Group, Goldman Sachs Global Investment Research, Bloomberg.

several initiatives to curtail the market share of large technology companies. It will be virtually impossible for technology companies to argue against their near-monopoly market share. As shown in Exhibit 66, the Herfindahl-Hirschman index, which measures market concentration, indicates record-high levels of concentration of the large-capitalization technology-related companies, with the index marginally higher than its peak in the early 1980s. While we expect the regulatory process to be slow and not materially impact the earnings growth of the top technology-related stocks in the next year or two, we are not relying on strong outperformance of the FANGMANT basket of stocks to drive the equity market.

As shown in Exhibit 67, our base case scenario for a 5% price return in the S&P 500 can be achieved if the FANGMANT basket matches or even lags the returns of the remaining stocks.

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Broadbandits

The surging cyberthreat from spies and crooks

Cyberattacks remain a significant threat from both state and non-state actors.

Cyberattacks

Cyberattacks remain a significant threat from both state and non-state actors. The 2021 Annual Threat Assessment of the US Intelligence Community reports that the biggest cyber threats continue to emanate from Russia, China, Iran and North Korea.35

The most disruptive risk is a cyberattack on physical and digital infrastructure. The Colonial Pipeline ransomware attack in early May 2021 was an example of how such attacks on critical infrastructure can affect an important part of the economy and have serious disruptive consequences. Carter has suggested that the US needs to push back on such attacks; otherwise, they will continue if not increase.

The discovery, in mid-December 2021, of a vulnerability in Log4j’s software, a tool widely used to collect information across computer networks, websites and applications, is the most recent example of the magnitude of the threat from