Goldman Sachs expects S&P 500 growth to slow in 2025, according to an analyst note issued Tuesday. But growth is still on the horizon based on the bank’s outlook.
The good-but-not-very-good forecast stems from Goldman’s belief that the macroeconomic picture is promising, but that the election of President-elect Donald Trump raises the risk of market shocks.
“In our baseline macro outlook, the economy and incomes continue to grow and bond yields stay around current levels. But event risk remains high through 2025, including the potential risk of across-the-board tariffs and even higher bond yields. potential risk from,” wrote chief U.S. equity strategist David Kosten.
Costin’s view assumes that Trump will impose tariffs on cars from other countries and “choose imports from China.” Trump’s signature economic policy during the campaign was a combination of blanket tariffs on all imports. Economists expect revenues to be broadly inflationary, as increased costs are passed on to consumers. Walmart CFO John David Rainey said Tuesday CNBC that widespread tariffs may increase the retailer’s costs and therefore prices for his buyers;
Many of these negative effects are expected by Goldman to create a rosy economic picture with overall lower inflation, the Federal Reserve and accelerated M&A activity, making it more attractive for investors in buyout companies. Profits may increase.
Throughout the year the S&P 500 will continue to be bolstered by the Magnificent 7, megacap tech stocks that account for most of the gains across the index. Even their influence will decrease in 2025 compared to the previous two years.
“The Magnificent 7 stocks will outperform the S&P 493 overall in 2025, but by about 7 pp, the slimmest margin in seven years,” Kosten wrote in the note.
In 2023, the Magnificent 7 outperformed the S&P 500 by 63 percentage points. These seven stocks have outperformed the S&P 500 by 22 points this year, according to Goldman. Despite their backsliding, the fact that they often dwarf the broader market has caused no shortage of concern among a certain segment of investors who fear that the market may Levels of concentration mask deeper risks in the market. For Goldman, though, the group is the engine that will drive investors to returns, even in an average year like 2025.
“Over the past two years the most productive equity investor has had to decide how much of a portfolio to allocate to the seven largest stocks in the index,” Coston wrote.
All in all, investors shouldn’t worry too much. The bank still predicts solid returns for the index. The S&P 500 will reach 6,500 by the end of 2025, an 11 percent increase from where it currently sits, according to forecasts. This would mean a return of 12% if investors include dividend payments.
Despite the healthy returns, 11 percent paled in comparison to the past two years’ performance. In 2023, the S&P 500 made a strong rally, ending the year up 24%. It has also increased by 24% so far this year. Investors then turned bearish instead of starting the year expecting just 2 percent growth, according to a February survey. Reuters. The growth trajectory for the S&P 500 assumes 2.5% real GDP growth leading to 5% sales growth across the index. Goldman also sees inflation moderating to 2.4 percent by the end of 2025.
Despite the fact that investors can expect some gains in 2025, Goldman admits that their outlook for next year will only rank as a mid-year return. “An expected gain of 11% would rank in the 46th percentile of the historical distribution of 12-month S&P 500 returns since 1980,” Coston said.
Goldman’s latest forecast comes after a particularly bearish outlook from October, predicting a 3% nominal return over the next 10 years. It also comes after US voters elected a president-elect who will manage its economy for the next four years. (Throughout the note, Coston and the team refer to Trump’s famous autobiography. The Art of the Deal (with precepts like “Think Big” and “Maximize your Options”.)
As Goldman prepares to return to Trump’s first year in office, it cautions investors not to miss the Magnificent 7 growth even amid a market that expects a middle-of-the-road return. .
Portfolio managers who embrace the ‘Magnificent 7’ have been rewarded. Many who didn’t suffer,” Costin said.
