Goldman Sachs Bull Market Predictions

Goldman Sachs analysts believe the S&P 500 will extend its bull market into 2025, driven by optimism in the economy and expectations of looser regulations under President Donald Trump.

Investor Optimism

The bank noted rising "animal spirits" among equity investors, driven by increased small business sentiment. They predict a 7% increase in the S&P 500, reaching 6,500 points by the end of 2025.

Shift in Stock Positioning

Investor optimism has led to heightened positioning in U.S. equities, particularly in cyclical stocks over defensive ones. The past month saw technology and consumer discretionary stocks contributing significantly to gains.

Analysts assert that the equity market seems to anticipate real GDP growth exceeding 3%, as indicated by the relative performance of cyclical versus defensive stocks.

Volatility and Valuation Concerns

Low implied volatility in equity options suggests that gaining high upside exposure remains inexpensive. However, stretched stock valuations are concerning, with disparities at their highest levels since 2021 and the late 1990s tech bubble.

Dealmaking Predictions

Goldman Sachs expects a 25% increase in dealmaking activities in the coming year due to looser financial conditions and increased CEO confidence. Trump's appointment of Andrew Ferguson as Chair of the Federal Trade Commission is expected to foster a more favorable M&A environment.

Regulatory Landscape

Trump’s administration is anticipated to implement expansionary policies and reduce regulatory scrutiny in sectors like AI and cryptocurrencies. However, his protectionist trade stance and proposed tariffs on China could lead to heightened inflation and potential trade tensions.