While policy shifts in the wake of the U.S. election add a menacing layer of uncertainty to the future outlook, Goldman Sachs expects 2025 to continue delivering global expansion.
The global investment bank expects 2025 to present substantial opportunities for macro investment strategies, which it believes will be a major driver of portfolio returns.
Goldman expects corporate and securitised bonds to continue to offer attractive income potential with strong credit fundamentals.
Capture income
While all G10 central banks, except the BoJ, are expected to cut rates, Goldman sees opportunities for relative value interest rate exposures and a more diversified approach to duration.
However, the investment bank remains vigilant about potential upside inflation risks that could alter central bank actions.
While fixed income spreads are tight, Goldman believes a combination of deteriorating fundamentals and weakening technical dynamics would be needed to trigger a turn in the credit cycle, which is not its base case for the coming year.
Consider tail risks in either direction
With income potential across corporate bonds and securitised sectors remaining attractive, Goldman’s company-level analysis reinforces its benign downgrade and default activity expectations.
“The 2020s have taught us to expect the unexpected, and entering 2025, we see risks to the global expansion tilted in both directions,” the investment bank’s client noted said.
“A key downside risk is universal US tariffs, adding to existing growth weakness in the Eurozone and China.”
However, the investment bank also flagged the prospect of improved global growth along with proactive fiscal stimulus in China or looser fiscal policy in Germany following its recent election.
Stay dynamic
As the year unfolds, Goldman reminds investors that the importance of balanced exposures, along with a dynamic approach to capturing opportunities, will be key.
As a result, the investment bank remains vigilant about any revival in "animal spirits" that could lead to less disciplined balance sheet management and challenge our constructive view of credit fundamentals.
But despite heightened uncertainty, the investment bank expects corporate and securitised bonds to continue offering attractive income potential with strong credit fundamentals.
In a recent client note, the investment bank reminded the market that historically tight valuations and the US election outcome accentuate the importance of active security selection, risk management, diversification, and a dynamic investment approach.
US Policy Mix
Goldman also reminded the market that the first 100 days of the Trump administration will be crucial for assessing legislative priorities.
But the investment bank expects tariffs to impact growth and inflation through various direct and indirect channels.
“The primary risk to global expansion and financial markets would come from a universal rise in tariffs,” Goldman notes.
“Overall, the implications for growth, inflation, and policy are complex and vary by economy.”
Consumer Spending
Overall, Goldman believes conditions for sustained consumer spending remain in place, supporting corporate earnings growth and income potential across corporate and securitised credit.
However, the investment bank has witnessed divergence across countries and among consumer cohorts, which highlights the importance of bottom-up security selection.
Politics & Policies
Goldman also suggests the major rise in public debt post-Covid, plus limited prospects for near-term consolidation and political uncertainty, could lead to volatility in sovereign bond markets, as seen in the UK in 2022 and France last year.
“The experience in France highlights the political challenges of enacting fiscal consolidation, which can create heightened policy uncertainty and weigh on investment and economic activity,” Goldman notes.
"However, political change can also catalyse an expansion in fiscal measures that may unlock growth opportunities. Germany stands out as a key candidate in this regard.”
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