Pretty much everything coming down the home stretch of this year is going to plan.
Post election rally (check)
6,000 for S&P 500 (SPY) in hand (check)
Small caps start to outperform (CHECK!)
Now let’s push beyond this recent picture to discuss the updated post election 2025 Outlook from Goldman Sachs. We will dive into some specifics and see how that jives with my outlook.
Market Outlook
This opening section from Goldman’s updated outlook pretty well sums up their view:
“The US economy is in a good place. Recession fears have diminished, inflation is trending back toward 2%, and the labor market has rebalanced but remains strong.”
Goldman Sachs Research predicts US GDP will grow 2.5% on a full-year basis. That compares with 1.9% for the consensus forecast of economists surveyed by Bloomberg.”
I agree with this assessment AS LONG AS tariffs are not truly raised as much as advertised.
As shared in this recent commentary (Does Trump Change Stock Market Outlook?), that would be quite inflationary stopping the Fed from lowering rates...and likely leading to subdued economic results. And yes, that would be bad news for stock prices.
Clearly the Goldman team is not worried about the above given this next section:
“Goldman Sachs Research forecasts that core PCE inflation, excluding tariff effects, will fall to 2.1% by the end of 2025. Tariffs may boost this measure of inflation to 2.4%, though it would be a one-time price level effect. Our economists’ analysis of the impact of the tariffs during the first Trump administration suggests that every 1 percentage point increase in the effective tariff rate would raise core PCE prices by 0.1 percentage points.”
To be clear, they see some negative impact to inflation. However, just like most market analysts, Goldman sees the pre-election combative talk of 100% increase in tariffs for China to be a bluff. Most likely that is a starting position that softens as negotiations move on to find a more reasonable compromise.
Here is another key section to review:
“How likely is a US recession?
Recession fears have faded as the downside risks that had worried markets failed to materialize,” Mericle writes. There’s 15% chance of US recession in the next 12 months, according to Goldman Sachs Research, which is roughly in line with the historical average.”
Please note that it is industry standard to assume there is 10% chance of recession forming in next 12 months no matter how glorious things appear. So, their slightly higher 15% probability is a nod to the fact that the economy is on solid footing and very unlikely to tip over into recession (and thus little chance of a bear market).
This is especially true as long as inflation continues to ebb lower allowing the Fed to cut rates in 2025 and beyond.
Speaking of which, the Fed Meeting Minutes were released on Tuesday. Not much of a surprise that they expect to be on a rate cutting path...just not in a hurry.
Even still bond investors took that information and increased their bets on another 25 basis point cut coming at the December 18th Fed meeting. That now stands at 60% probability up from 52% the day before the announcement.
Putting it altogether, Goldman’s 2025 outlook is not that dissimilar from my 2025 Stock Market Outlook.
The trading plan spelled out in mine says to get ready for the S&P 500 to be a bit sleepy next year. This falls into the typical pattern for new bull markets where the first 2 years have glorious returns followed by a lackluster 3rd year.
But that outlook is mostly for large and mega caps which are a bit played out with excessive valuations. Those looking for outperformance should continue to focus on healthy small and mid cap stocks.
Our portfolio has been exceptionally dialed in leading to a +35.04% gain year to date.
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SPY shares rose $0.53 (+0.09%) in after-hours trading Tuesday. Year-to-date, SPY has gained 27.56%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
Is Goldman Sachs’ 2025 Outlook Correct? StockNews.com
