Goldman Sachs’ Global Markets Outlook 2025 identifies a year of transition, with U.S. policy shifts, geopolitical tensions, and inflation risks dominating the global narrative. The report highlights ten key investment themes to guide portfolio strategies, emphasizing the balance between tail risks and tailwinds as markets adjust to a post-election environment and evolving economic landscapes.
Key Investment Themes for 2025
1. Wider Distributions After the Soft Landing
- Base Case: Solid U.S. growth, cooling inflation, and favorable monetary policies support higher equities, stronger USD, and moderate rate cuts.
- Tail Risks:
- Upside: Tariff limitations and stronger-than-expected productivity gains.
- Downside: Inflation resurgence or broader trade conflicts.
2. Tariff Risks
- China Tariffs: New 20% tariffs expected in early 2025 with moderate impacts due to reduced U.S.-China trade dependence.
- Global Spillovers:
- Broader tariffs on Europe or Mexico could significantly disrupt global trading arrangements, pushing inflation up by 1% in the U.S. and tightening financial conditions globally.
3. Fiscal Risks and Terminal Rates
- U.S. Fiscal Expansion: Tax cuts and increased defense spending push U.S. rates higher, while easing immigration adds to inflationary pressures.
- Global Divergences: Higher terminal rates anticipated in Japan and EMs due to fiscal stimulus and policy realignments.
4. Dollar Strength
- Divergence Theme: The U.S. outpaces DM peers in growth, supported by fiscal policies and tariffs.
- Risks to USD Dominance: Broad-based trade conflicts or synchronized global fiscal responses could challenge USD strength.
5. China’s Resilience Amid Challenges
- Policy Response: Fiscal measures (raising deficit to 3.6% of GDP) and local government debt resolution aim to stabilize growth.
- Geopolitical Risks: Tariffs and domestic restructuring remain key hurdles, though domestic demand transitions provide longer-term support.
6. Europe and Emerging Markets (EMs)
- Europe: Sluggish growth exacerbated by trade tensions, with ECB deepening rate cuts.
- EMs:
- Focus on resilient markets (e.g., India, select CEE economies).
- Risks from a stronger USD and U.S. tariffs linger.
7. Energy and Commodities
- Oil: Brent crude expected to remain range-bound ($70–$85/bbl) with upside from geopolitical disruptions and downside from increased supply.
- Gold: Positioned as a hedge against inflation and geopolitical risks.
8. Inflation and Growth Shocks
- Inflation Normalization:
- Baseline: Inflation eases, allowing central banks to focus on growth.
- Risks: Trade wars could increase U.S. core inflation to 3%, while a favorable oil supply backdrop aids disinflation.
9. Valuation Challenges
- U.S. Equities: Historically high valuations suggest potential downside if growth slows.
- Credit Markets: Tight spreads offer limited upside, but high yields provide resilience.
10. Diversification and Hedges
- Portfolio Strategies:
- Emphasize U.S. equities with hedges against downside risks using options.
- Long positions in USD and commodities like gold and oil enhance portfolio resilience.
- Non-U.S. Opportunities: Select EM equities and bonds may benefit if U.S. policies are less aggressive than anticipated.
Strategic Recommendations
- Equities:
- Maintain overweight positions in U.S. equities, especially mid-cap and value stocks.
- Diversify globally, focusing on non-U.S. opportunities with hedges for geopolitical risks.
- Fixed Income:
- Allocate to U.S. Treasuries, TIPS, and Bunds for diversification.
- Favor short-duration bonds and select EM debt for yield opportunities.
- Commodities:
- Maintain exposure to oil and gold as hedges against inflation and geopolitical uncertainties.
- Currency Positions:
- Long USD against EUR, CAD, and EM currencies to capture strength from divergent growth trends.
Conclusion
Goldman Sachs’ 2025 outlook underscores a pivotal year for global markets, balancing opportunities in U.S. equities and commodities with risks from inflation, geopolitical tensions, and tariff shocks. Active portfolio management, diversification, and strategic hedging will be crucial in navigating the complexities of the year ahead.
