As the United States moves into 2025 with Donald Trump back in the White House, Goldman Sachs has outlined a positive outlook for the year, drawing on the former president’s book The Art of the Deal as a metaphor for market strategy.
"Think Big": Trump’s philosophy of bold ambition is tied to Goldman's emphasis on the "Magnificent 7" — major tech companies such as Apple, Amazon, and Tesla. While these companies are projected to outperform, Goldman expects their margin of outperformance to narrow, suggesting a focus on broader opportunities in mid-cap and smaller growth stocks.
"Maximise Your Options": Inspired by Trump’s chapter on keeping multiple opportunities in play, Goldman recommends diversifying investments into companies likely to benefit from increased mergers and acquisitions (M&A). This reflects the dynamic deal-making ethos central to Trump’s approach.
Low rent
"Low Rent, High Stakes": Trump’s (purported) ability to transform undervalued properties into high-value developments mirrors Goldman’s strategy for investing in companies tied to U.S. small and mid-sized businesses. These firms, often overlooked, are poised to benefit from improved economic conditions under the new administration.
"Deliver the Goods": In line with Trump’s emphasis on delivering tangible results, Goldman highlights AI-driven firms in "Phase 3" of the AI evolution — companies expected to monetise AI applications and drive real revenue growth.
"Protect the Downside and the Upside Will Take Care of Itself": Reflecting Trump’s risk-aware philosophy, Goldman advises investors to balance high-growth opportunities with defensive sectors like utilities, ensuring resilience against economic shocks.
The investment bank projects the S&P 500 index will climb to 6,500 by the end of 2025, an 11% rise from current levels, driven by solid economic expansion and corporate earnings growth.
Earnings boost
It also expects corporate earnings to increase by 11% in 2025, supported by steady consumer demand and business investment. Inflation is forecast to cool, while economic growth stabilises at 2.5%, creating a favourable environment for equity markets. However, valuations remain elevated, with the S&P 500 trading at over 21 times forward earnings. This poses risks, as high valuations often magnify losses during market shocks.
Small and mid-sized businesses, often referred to as the backbone of the economy, also feature prominently in Goldman’s outlook. Stocks tied to small business revenue are expected to benefit from improving economic sentiment. Historically, small business optimism surges during Republican administrations, and Goldman predicts similar trends this time. These stocks are positioned to outperform as the operating environment improves and borrowing costs ease.
Goldman also advises keeping an eye on mid-cap stocks, which trade at more attractive valuations than their larger peers. Mid-caps are expected to grow earnings at a faster pace, offering a balance between stability and growth potential. For investors seeking diversification, mid-cap equities could provide strong returns in 2025.
Tech-savvy
Sector-wise, Goldman recommends a balanced approach. Technology stocks remain a growth driver, particularly in AI-enabled applications. At the same time, defensive sectors like utilities offer stability, especially if economic growth slows. Materials stocks are also highlighted, as they stand to gain from a rebound in commodity prices and global demand.
The investment bank warns that risks remain. Trade tensions and policy missteps could disrupt growth, while high bond yields could challenge corporate profits. However, it encourages investors to take advantage of periods of market stability to position themselves for long-term gains.
Goldman’s 2025 forecast reflects optimism tempered with caution. While economic fundamentals appear robust, the elevated starting point of equity valuations calls for strategic, diversified investments. Investors should focus on opportunities in growth sectors while balancing risks with defensive plays.