Goldman Sachs, others weigh in on what’s ahead for the market in 2025

As 2024 comes to a close, financial advisors are turning to market forecasts for 2025 to gain insights into future trends that will help them manage risk and inform their investment allocations and business decisions. Here are market forecasts from three financial services firms.

Goldman Sachs

According to research from Goldman Sachs, the S&P 500 Index of U.S. stocks is forecast to have its third-straight year of gains amid solid economic expansion and steady earnings growth.
The benchmark index of U.S. equities is projected to rise to 6,500 by the end of 2025, a 9% price gain from its current level and a 10% total return, including dividends, David Kostin, chief U.S. equity strategist at Goldman Sachs, wrote in the team’s report. Earnings are predicted to increase 11% in 2025 and 7% in 2026.

Corporate revenue growth (at the index level) typically moves in line with nominal GDP growth, according to Goldman Sachs Research. Its strategists’ estimate of 5% sales growth for the S&P 500 is consistent with its economists’ forecasts for 2.5% real GDP growth and for inflation to cool to 2.4% by the end of next year.

The incoming administration of President-elect Donald Trump is expected to introduce trade policy that includes targeted tariffs on imported automobiles and select imports from China while also cutting taxes. “The impact of these policy changes on our earnings-per-share forecasts roughly offset one another,” Kostin wrote. “An equity market that is already pricing an optimistic macro backdrop and carrying high valuations creates risks heading into 2025,” he added. “High multiples are weak signals for near-term returns, but typically increase the magnitude of market downturns when there’s a negative shock.” he wrote.

According to Goldman Sachs Research’s baseline macroeconomic outlook, the economy and earnings continue to grow, and bond yields will remain around current levels in the coming years. But there are a number of risks heading into 2025. These include the potential threat of an across-the-board tariff and the potential of higher bond yields.

At the other end of the spectrum, a friendlier mix of fiscal policy or more dovish policy from the Federal Reserve could result in higher returns. “As a result, we believe investors should take advantage of periods of low volatility to capture equity upside or hedge downside through options,” Kostin wrote.

State Street Global Advisors

State Street Global Advisors, the asset- management business of State Street Corporation, recently launched its 2025 Global Market Outlook, Finding the Right Path. The report outlines the firm’s macroeconomic outlook and key investment themes for the year ahead.

Against the background of a resilient economic environment and major central banks embarking on an easing cycle in 2024, equity markets delivered strong returns, while fixed income markets saw modest returns. Looking ahead, State Street Global Advisors expects rate cuts and macroeconomic resilience to continue in 2025, and its long-standing forecast of a U.S. soft landing to materialize.

Lori Heinel, Global chief investment officer, commented: “2024 was no ordinary year, with elections around the world, persistent inflation and market volatility all playing their part in building an uncertain macroeconomic environment. Despite these challenges, markets continued to be resilient. As we enter 2025, we remain cautiously optimistic, with expectations of a soft anding in the U.S. looking set to translate into reality. While there are a range of uncertainties to contend with, investors may want to consider above target allocations to equities and should remain thoughtful about portfolio construction.”

The firm believes that the rate cut cycle that started in 2024 will continue for a while longer, although the Trump-led Republican election victory could result in a change to the narrative in the latter part of 2025. Global geopolitical forces could also play their part in rupturing long-standing economic and financial ties.

State Street Global retains its favorable outlook for fixed income in 2025. It anticipates that slowing economic output and tame inflation will allow central banks to cut policy rates further, even though the pace and scale may be more uncertain with a Trump administration. This uncertainty may offer investors tactical opportunities to build or expand their duration positioning through the easing cycle.

Jennifer Bender, Global chief investment strategist, said: “While spreads across both investment grade credit and high yield debt are near historic lows, we are optimistic about prospects for fixed income assets next year, and see a generally favorable environment for advanced economy sovereign debt. Market sentiment swings and volatility could potentially create opportunities for investors to manage or extend duration.”

Bender continued: “We expect Japanese equities to move sideways due to potential volatility, while Chinese equities may struggle sustaining higher growth and strong performance despite the short-term relief from the country’s stimulus program. At the same time, we believe U.S. large-cap equity will maintain its structural advantage to the rest of developed markets and see the outlook for emerging markets as more nuanced as investors balance economic and earnings growth and easing inflationary pressures versus geopolitical risk and a strong US dollar.”

Aside from the outlook for different asset classes, the firm also highlighted important considerations in portfolio construction, the emergence of the Gulf Cooperation Council (GCC) region as an investment location worth greater consideration, and the disruptive power of transformative technologies, such as generative AI and “tokenizaton.”

Heinel added: “The GCC region is undergoing significant transformation driven by its Vision plans, which increases its appeal for both domestic and international investors and is reflected in the performance of the equity and bond markets. From the inclusion of GCC countries in global indices, to the region’s substantial fixed income issuance, the GCC region offers significant growth potential for diversification.”

Wells Fargo

In the summary of its 2025 Annual Outlook, Wells Fargo shared the following insights:

• The economic aftershocks of the COVID pandemic, which have dominated the economic landscape over the past few years, are steadily dissipating. These pandemic-induced economic effects are set to be largely supplanted by economic policy changes that are on the horizon in the U.S.
• The American president can act largely unilaterally when it comes to changes in trade policy. During his campaign for the presidency, Donald Trump promised to impose a 10% across-the-board tariff on U.S. trading partners, with 60% levied on China. Although the magnitude and timing of any actual tariff hikes are uncertain, the firm expects the Trump administration will indeed impose some levies on American trading partners. By raising consumer prices, tariffs impart a modest “stagflationary” shock to an economy, the firm wrote.
• Wells Fargo said that it has bumped up its forecast of inflation for next year, while shaving down its real GDP growth forecast. “We still expect the Federal Reserve to ease monetary policy further, but we believe the target range for the federal funds rate will be 50 bps higher at the end of 2025 than we did previously,” it wrote.
• Republicans will control both chambers of Congress beginning in the new year. “We expect Congress to fully extend the tax cuts that were legislated in the 2017 Tax Cuts and Jobs Act, which are set to expire at the end of 2025. But extension of the tax cuts does not impart fiscal stimulus to the economy, because extension would simply prevent tax rates from reverting to their higher pre-2017 levels. That noted, the firm said that it expects Congress to legislate some additional tax relief next year, which should help to boost real GDP growth in 2026.
• Not only will tariffs weigh on U.S. real GDP growth next year, but economies with significant export exposure to the U.S. likely will be negatively affected as well, the firm wrote. Under the firm’s tariff assumptions, it forecasts that the global economy will grow only 2.5% in 2025, down from 3% in 2024.
• Wells Fargo is looking for a significant amount of monetary easing next year by many major foreign central banks, including the European Central Bank, the Bank of England and the Bank of Canada. As interest rate differentials move in favor of the greenback, it is looking for the trade-weighted value of the U.S. dollar to rise to its highest level in more than 20 years in the coming quarters.

© Entire contents copyright 2024 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.