Market Pulse January
10 for 2025
1. Growth: We continue to see limited recession risk and expect several tailwinds to global growth, including strong real household income growth, a smaller drag from monetary/fiscal tightening, a recovery in manufacturing activity, and an increased willingness of central banks to deliver insurance cuts, if needed.
2. Post-Election Policy: While we expect US policy changes next year, we think they are unlikely to substantially alter the trajectory of the US economy or monetary policy. In the US, the Trump Administration has pledged new tariffs on China and autos, reduced net immigration, modest new tax cuts, and a more relaxed regulatory stance compared to now.
3. Inflation: Higher tariffs would likely raise US inflation, at least in the short term. Excluding tariffs, we expect US Core PCE to decline to 2.1% in 2025. However, our baseline tariff scenario includes a 0.3-0.4pp boost to core inflation, with a larger impact under a 10% across-the-board tariff.
4. Monetary Policy: The previous experience with US tariffs in 2019 suggests that if inflation expectations remain well anchored, the Federal Reserve (Fed) would try to ‘see through’ tariff-driven inflation. We expect the Fed to deliver quarterly rate cuts through 3Q 2025, reaching a terminal rate of 3.5-3.75%. Globally, we expect cuts from all G10 central banks except the BoJ in 2025.
5. Developed Market Equities: Goldman Sachs Global Investment Research (GIR) forecasts the S&P 500 to rise to 6500 by year-end 2025, predicated on continued US economic expansion, earnings growth of 11% and a year-end next-twelve-months P/E multiple of 21.5x. Globally, we expect moderating returns, governed by earnings growth and dividends. We prefer geographic diversification, equal-weight S&P 500, small/mid caps and artificial intelligence (AI)-enabled revenue exposure.
6. Emerging Market Equities: A stronger dollar, higher tariffs on China and autos, and shallower easing cycles across EM provide a more challenging backdrop. We think emerging markets with 1) strong domestic micro fundamentals, 2) insulation from external risks such as tariffs, and 3) supportive local policy are well-positioned to outperform in 2025.
7. Rates: In the US, we expect longer-term yields to remain at around current levels, reflecting ongoing pressure from persistently elevated deficits. We think a steepening bias best suits a scenario where the Fed is more focused on growth than inflation risks. Outside the US, the growth downside case for owning duration is most pronounced in Europe.
8. Credit: Investors will likely start 2025 with tight spread constraints, though we expect these levels to persist. We see risks migrating from systemic concerns within the banking system to broader trade war and US debt sustainability concerns.
9. Currencies: We had expected the US Dollar to gradually decline as global growth moved into better balance. However, Dollar challengers still struggle to mount a better case. We now expect tariffs may feature prominently in US policy, along with some further fiscal changes. This backdrop poses a potent combination for Dollar resiliency in 2025.
10. Commodities: The wide range of potential US policy shifts may strengthen the role of commodities. Gold and oil positions, in particular, may act as inflation and geopolitical hedges in scenarios such as tariff escalation, supply disruptions, conflict escalation, and debt sustainability.
Source: Goldman Sachs GIR and Goldman Sachs Asset Management. As of December 17, 2024. Chart shows S&P 500 1-Year forward realized volatility by market concentration decile, highlighting today’s concentration level as within the 10th decile. For illustrative purposes only. There is no guarantee that objectives will be met. Past performance does not predict future returns nor guarantee future results.
Price targets of major asset classes are provided by Goldman Sachs Global Investment Research. Source: “Global equities take a break; markets down 1% last week” – December 16, 2024. Pricing is as of the close of December 31, 2024.
Source: Goldman Sachs GIR and Goldman Sachs Asset Management. As of December 2024. Price targets of major asset classes are provided by Goldman Sachs Global Investment Research “Global equities take a break; markets down 1% last week”. As of December 16, 2024 and pricing is as of the close of December 31, 2024. “We/Our” refers to Goldman Sachs Asset Management. The macro and market views expressed may differ from those of GIR and other divisions of Goldman Sachs and its affiliates. See end for additional disclosures. The economic and market forecasts presented herein are for informational purposes as of the date of this document. There can be no assurance that the forecasts will be achieved. Past performance does not predict future returns and does not guarantee future results, which may vary.
2024: Year in Review
Calendar year 2024 is likely to be remembered as the year of elections, with over 4 billion eligible voters globally. While we did not garner much ideological insight from the over 100 global elections, there was an unmistakable repudiation of incumbents. Frustration with inflation was top of mind, all while global growth held steady and markets broke through new records. With 2024 now behind us, we summarize what was an eventful past year before looking ahead to 2025.
Source: Bloomberg, Barron’s, Newsweek, NBC Sports, NPR, Reuters, Stock Analysis, ParlGov and Goldman Sachs Asset Management. As of December 17, 2024. “Today” refers to December 17, 2024. For illustrative purposes only. Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Past performance does not predict future returns and does not guarantee future results, which may vary.
