According to the latest report "Reasons for Recalibration" from the asset management department of the Wall Street financial giant Goldman Sachs, the loose benchmark interest rate period, geopolitical risks, and the post-election 'MAGA' policy of the Trump administration all give investors reasons to readjust their investment focus in 2025.

Goldman Sachs, known as the 'bull market leader' in major asset classes such as stocks, bonds, and commodities, pointed out in the report that adopting a broad, diversified, and global investment toolkit in public and private markets will help achieve positive investment results and mitigate risks.

Goldman Sachs indicated that global investors have plenty of reasons to enter the bond market, broaden their private equity investment horizons, explore alternative paths, and seize opportunities amid potential market turbulence in 2025. The core reasons cited by Goldman Sachs include the imminent 'soft landing' of the US economy, late-stage significant investment opportunities, and ongoing tail risks. Goldman Sachs is optimistic about the trends in the US stock and bond markets in 2025, expressing a firm bullish view that the US stock and bond markets will enter an upward trajectory in 2025, expecting the S&P 500 index to reach 6,500 points, higher than the previously projected 6,300 points. As of Thursday's US market close, the S&P 500 index closed at 5,948.71 points.

Looking at the global macroeconomy, Goldman Sachs mentioned that the slowdown in the UK economic growth and inflation moving towards normalization could lead to a faster rate cut in benchmark interest rates. Major central banks globally, such as the Bank of Canada and the Swedish Riksbank, are also shifting towards a dovish direction. Japan remains an exception and may accelerate rate hikes to counter the depreciation of the yen, as well as domestic price and wage increases.

With the Federal Reserve starting a rate cut cycle, there may be continued loose policy stance in 2025, which also opens the door for the loose monetary policies of central banks in emerging markets, providing central banks with a broader monetary policy space. Goldman Sachs stated that the economic growth in emerging markets and stock markets still show relative resilience, especially as the overall inflation rate in emerging markets remains significantly lower than the peak in 2022.

Outlook for the US bond market

Goldman Sachs expects the U.S. bond market in 2025 to potentially experience an investment boom due to changes in interest rates, corporate credit conditions, and other macro and fundamental factors, especially the large-scale cash assets that tend to be cautious and conservative may shift to bonds, a fixed-income asset benefiting from rate cuts.

"Historical data shows that when the Federal Reserve begins a rate cut cycle, the bond market is where investors should pay more attention." Goldman Sachs asset management department stated in the report. Goldman Sachs said that in 2025, investors shifting from cash assets to bonds and other fixed-income assets should achieve more significant returns, potentially leading to widespread appreciation of fixed-income assets. "Proactive investment strategies, diversification, and strong risk management will be crucial."

Despite the U.S. election expanding the range of economic outcomes, Goldman Sachs still expects the Federal Reserve to choose consecutive rate cuts in December and early 2025, with further rate cuts likely to follow, but the pace of rate cuts may slow down. The main fixed-income risk lies in a noticeable rise in U.S. inflation rates, which may slow down the Fed's easing pace, prompting the Fed to choose a prolonged pause in rate cuts to observe economic data.

"Our analysis shows that companies in the investment-grade credit market can maintain resilience in bond price increases in 2025, just as they have shown strong resilience to rising rates in recent years. This reflects a good starting point of credit indicators and the ability to be more selective in new investment directions or large-scale M&A activities." Goldman Sachs asset management department fixed income strategy director Simon Dangor said.

Goldman Sachs stated that healthy corporate credit indicators indicate that U.S. companies have enough resilience to withstand economic fluctuations. Against the backdrop of declining interest rates, companies are able to proactively adjust their capital structure (such as issuing new bonds or early redemption of old bonds), and selectively allocate capital in favorable market conditions. At the same time, investors, with the possibility of further cuts in the U.S. benchmark interest rate, can achieve optimized returns on fixed-income assets by selecting quality bond assets (such as investment-grade bonds or high-yield green bonds) and controlling risks.

"Investment-grade bonds, as a choice to increase portfolio returns, will stand out in balancing profit earning and risk management." Goldman Sachs asset management department multi-strategy fixed income director Lindsay Rosner added.

Goldman Sachs also believes that the green bond market is one of the fastest-growing segments in the fixed-income asset space, where there are plenty of opportunities to earn returns and utilize higher yields.

U.S. Stock Market

Goldman Sachs stated in its report that the US stock market remains the most attractive: "In 2025, adopting a comprehensive and differentiated investment strategy in the large and mid-cap stock sectors in the USA may bring positive returns." Other Wall Street wealth management institutions such as Pictet Asset Management are also bullish on the US stock market in 2025.

"Under the rate cut and further promotion of domestic trade policy, US small-cap stocks may undergo a turning point. When the central bank starts to cut interest rates, especially in the case of an economic soft landing, the performance of US small-cap stocks often outperforms that of large-cap stocks. With interest rates continuing to decline, small-cap stocks may continue to benefit from the rate-cut cycle." Gregory Tufto, head of small and mid-cap stocks at Goldman Sachs Asset Management, stated.

Goldman Sachs predicts that there is still upward potential for global stock markets, citing strong corporate earnings growth and a series of Trump administration new policies favorable to US companies such as tax cuts and relaxed regulations. The report forecasts that in the next 12 months, the S&P 500 index is expected to rise to 6,500 points, higher than the institution's previous target of 6,300 points. This forecast coincides with another Wall Street heavyweight, Morgan Stanley, where its chief equity strategist Michael Wilson recently turned bullish on US stocks, stating that high valuations need not be a concern, and the S&P 500 could reach around 6,500 points by the end of next year.

BMO Capital Markets' expectations for the US stock market rank among the most optimistic on Wall Street, with the institution anticipating that by the end of 2025, the S&P 500 index could reach 6,700 points. Evercore ISI has a more optimistic forecast, expecting the S&P 500 index to rise to 6,600 points by mid-2025 (that is, next June). Evercore ISI stated that the prospects of regulatory relaxation support the US stock market, "We believe prosperity is around the corner; when President Trump is re-elected, he will quickly take proactive policy measures to promote economic growth, and the stock market will rise rapidly."

On Wall Street, including Goldman Sachs, JPMorgan Chase, and Morgan Stanley, Wall Street financial giants seem to firmly believe that even in the midst of "global economic" turmoil caused by the unprecedented tariff policies implemented by Trump triggering a global "trade war", US stocks will always stand strong. The rise in the US stock market is seen as one of the most typical measures of his significant achievements in his tenure.

The so-called 'Trump Administration scoreboard,' for Wall Street and even a portion of American voters, is the s&p 500 index. Trump regards the US stocks as an achievement, which is the greatest expectation of the bullish forces on Wall Street. Wall Street strategists generally believe that even though the Trump 2.0 era may bring about high deficits, re-inflation, a new round of global trade wars, and even a global economic downturn, the next US president will at least not let his economic plan damage the resilience of the US economy and the US stock market.

"Trump believes that the stock market performance is the most important component of his performance evaluation." Eric Stein, Chief Investment Officer of Apollo Wealth Management, said, "During his first term, he often started his speeches as president with 'how is your 401K retirement fund?', when the market was at historic highs. Therefore, he obviously did not want to enact any economic policies that could threaten the current bull market."

"Outside the US, stocks of companies in the healthcare, clean energy, and luxury goods sectors that lack equivalent-level companies in the USA seem to have investment appeal. In non-US developed markets, we see significant investment opportunities in large dividend-paying companies with sustainable return rates, strong cash flow generation capabilities, good capital discipline records, and continuous dividend payment histories." Alexis Deladrei, head of international developed market stocks at Goldman Sachs Asset Management, stated.

"Due to strong corporate earnings growth, valuation remains reasonable. Although emerging market stocks assets may face negative expectations due to Trump's tariff increases, large companies focusing on domestic markets may also bring significant investment opportunities. Asian stock markets are showing clear differentiation, with Japan and India's stock markets still presenting strong upward fundamentals." According to Ashish Shah, Chief Investment Officer of Public Investments at Goldman Sachs Asset Management.

"In other regions, such as the stock markets in China, Taiwan, and South Korea, having semiconductor companies critical to the development of artificial intelligence, these semiconductor market key players' stock prices may outperform the local benchmark stock indexes. The Japanese stock market, driven by strong earnings, enhanced corporate governance measures, and changes in the inflation environment, is expected to experience some adverse factors as well, such as the overly hawkish Bank of Japan. Countries with favorable demographic structures, like Mexico, also appear attractive." Shah said.

For other global markets, overall, Goldman Sachs is more bullish on the Japanese stock market and expects it to outperform European stock markets and many emerging markets. It is projected by Goldman Sachs that the benchmark index of the Japanese stock market - TOPIX index is expected to rise to 3100 points, with a total return rate in local currency of 17%, currently hovering around 2700; it is expected that the STOXX 600 index in Europe will rise to 530 points, with a total return rate in local currency of about 8%.

Private Equity and Private Credit

Goldman Sachs believes that the private market is evolving and attracting a wider range of investors seeking to complement traditional market exposures. "A stable macro backdrop and the realignment of investor expectations should act as catalysts for a more normalized private equity acquisition environment in 2025." Brad Gross, Co-Head of Global Alternative Investments Private Equity at Goldman Sachs, said. He believes there are signs that this process has begun, positioning the industry more favorably for exits and new capital deployments, although certain areas of the market are more attractive than others.

"Valuations and growth expectations in many sectors of the venture capital and growth equity space have already normalized, with the subdued financing environment of the past two years resulting in a dry powder size lower than the record in 2023. These factors create a more constructive environment for deploying new capital in an asset class that often provides significant opportunities for innovative companies in the highest growth stages. "As venture-backed companies remain private for longer, the demand for growth equity capital continues to grow." Goldman Sachs stated.

"Interest rate declines may surprisingly be constructive for private credit, easing supply-demand imbalances and normalizing spread levels," added Greg Olafson, Global Head of Alternative Investments Private Credit at Goldman Sachs.

"Overall, there should be a balance between the overall demand for public credit and private credit, with businesses choosing between the lower capital costs available in the public markets and the more tailored capital structures and financing solutions in the private markets." He said. Overall, he expects the market interest in private credit to continue to grow, and anticipates that this interest will expand into various areas, such as direct investment-grade credit and asset financing.

Real estate activities may accelerate.

"Similar to other major asset classes, real estate fundamentals are being driven by market cycles for returns. The dynamics observed in the real estate sector are being driven by demographics, technological industry development, and sustainable long-term trends, all of which will continue to shape global real estate demand. The attractiveness of real estate assets reflecting these themes will vary by region and individual asset quality." said Goldman Sachs' global real estate alternative investments head, Jim Goldman.

Sustainable development.

Goldman Sachs emphasizes that investors are refocusing on "substantial factors," opting to "return to fundamentals," and paying more attention to financial returns. By making investments that have a tangible impact in core areas such as carbon emissions, while maximizing financial returns, this is a modern sustainable investment strategy that combines environmental goals with economic interests.

Goldman Sachs's asset management department believes that the continuously expanding investable universe will bring about larger scale real impacts, linking sustainable development models with stock performance and quantifiable impacts to enhance performance. "The global decarbonization mega-trend will require the injection of capital into high-emitting industries such as cement, chemicals, and steel producers, and substantial progress is needed." Goldman Sachs stated.