Spencer Platt/Getty Images; Bryan Erickson/Business Insider
Investors feeling nervous about markets and the economy have a number of reasons to cheer up, with several bullish factors set to keep the rally going next year, according to Goldman Sachs.
Economists at the bank made several predictions for markets and the economy in 2025, some of which buck current expectations.
Some investors are starting to sour on next year's outlook, with over 34% of traders saying they were bearish on stocks over the next six months, according to the AAII's latest investor Sentiment Survey.
Meanwhile, the Conference Board's Expectations Index, a measure of how consumers feel about various parts of the economy, dropped to near-recessionary levels in December.
Yet, a handful of factors could keep the economy going strong or even stronger in 2025.
Here are five bullish calls the bank has made for the coming year.
The US economy could expand even faster than investors are currently expecting. Goldman Sachs forecast GDP to grow 2.4% year-over-year by the fourth quarter of 2025, above the consensus estimate of 2% growth.
That increase will largely be fueled by strong consumer spending. Americans, bolstered by a strong job market and increased wealth from holding stocks, will likely ramp up their spending by 2.3% on a yearly basis in 2025, Goldman predicted, on par with consumer spending growth seen over the last two years.
Investment by businesses will probably far surpass expectations, Goldman said. The bank predicted that private investment in the economy would climb 5% year-over-year in the fourth quarter, above consensus estimates of around 3% growth.
Goldman Sachs Global Investment Research, Bloomberg
"While the factory-building boom subsidized by the Inflation Reduction Act and CHIPS Act will slow, spending on equipment for those new factories and for artificial intelligence, the reinstatement of tax incentives, rising confidence, and lower short-term borrowing rates for small businesses should fuel roughly 5% growth in business investment," economists said.
The employment picture could look a lot stronger in 2025. Unemployment will likely fall back to around 4% by the end of 2025, Goldman predicted, slightly lower than the 4.2% jobless rate recorded in November.
"Job openings remain high and strong final demand growth should keep labor demand growing robustly. Meanwhile, the surge in immigrant labor supply that the labor market struggled to fully absorb this year has already slowed sharply and will fade further," the note added.
Goldman Sachs is expecting the Fed to cut rates three times next year, with decreases to the fed funds rate coming in March, June, and September. That reflects a slightly more aggressive pace of easing than what investors and Fed officials themselves are expecting, with the latest projections showing the central bank eyeing two rate cuts for 2025.
"Both our baseline and probability-weighted Fed forecasts are more dovish than market pricing, which reflects both our confidence that the underlying inflation trend will continue to decline and our view that the risks for interest rates from policy changes under the second Trump administration are more two-sided than widely assumed," the bank said.
Economists have said that some of Trump's proposed policies, like his plan to levy steep tariffs, could cause inflation to spike and interest rates to rise. Trump implemented tariffs during his first term as president without a significant price increase, but his tariff plan this time around is much broader, explaining the difference in inflation forecasts.
Price growth, though, will likely continue to decline, Goldman predicted. The bank forecast core personal expenditures inflation —the Fed's preferred measure that excludes volatile food and energy prices — to fall to 2.1% by the end of next year, down from the 2.8% growth recorded in November.
The decline will be partly driven by "catch-up inflation" ending next year, the bank said, referring to how real inflation in the economy often lags behind the official statistics. Areas that typically lag, like car insurance and rent prices, have started to cool in recent months.
Goldman Sachs Global Investment Research, Department of Commerce
Wage growth, another factor that influences inflation, is also starting to cool, which should help lower price growth. Wages grew just 3.9% over the last year, down from the recorded 4.7% in 2023, according to Goldman Sachs data.
Goldman remains solidly bullish on stocks going into the new year. Previously, the bank's strategists predicted the S&P 500 could rise to 6,500 by the end of 2025, implying 10% upside from current levels.
