In 2024, the cross-asset performance pattern from 2023 continues, with the seven giants of the US stock market and European bank stocks performing prominently. Bitcoin shows strong performance due to Trump's return to the White House, while precious metals like gold perform even better than last year, and the Nasdaq shows relatively poor performance. Japanese government bonds, the yen, and long-term US Treasury bonds perform the worst, with value stocks once again underperforming growth stocks.
Looking ahead to 2025, Goldman Sachs believes that global economic growth will remain stable, inflation will further decline, and monetary policy will continue its easing trend. However, due to the diminishing tailwinds from easing inflation, the valuations of risk assets are at high levels, coupled with increased policy uncertainty following the US elections, geopolitical risks, and a shift towards &#34;re-inflation,&#34; leading to increased tail risks. Goldman Sachs previously pointed out that Trump's tariff policy may be the tail risk that global markets need to pay the most attention to next year.
Against this macro backdrop, Goldman Sachs advises investors to maintain a moderately risk-on stance in asset allocation while keeping balance in multi-asset portfolios.
On Tuesday local time, Goldman Sachs' Christian Mueller-Glissmann strategist team released a research report stating that although structural and cyclical macro conditions may continue to support relatively high valuations compared to historical levels, long-term returns may decrease. Therefore, Goldman Sachs recommends that investors maintain a balance between stocks and safe-haven assets to counter next year's tail risks.
Goldman Sachs believes that high concentration and high valuations are reasons to reduce the weight of US stocks in multi-asset portfolios, focusing on assets such as Asian stocks like Japan, short-term government bonds, and the US dollar, while gold remains the best hedging tool.
<h2>The Core of 2025 Investment - &#34;Balance Overcomes Tail Risks&#34;</h2>
In Goldman Sachs' view, the core theme of the 2025 asset allocation outlook is &#34;lower returns, higher risks, more balance.&#34;
Against the backdrop of stable global growth, declining inflation, and central bank interest rate cuts, Goldman Sachs advises investors to maintain a moderate risk appetite. However, due to the diminishing tailwinds from easing inflation and the high valuations of risk assets, the challenge for investors is that the market has already priced in a friendly macro backdrop.
Therefore, Goldman Sachs recommends seeking more balance in multi-asset portfolios, particularly through bonds to buffer against growth shocks caused by declining inflation. However, once inflation rises again, the correlation between stocks and bonds may increase, potentially impacting the traditional 60/40 investment portfolio.
In this environment, Goldman Sachs believes that although stock valuations are nearing historical highs, monetary policy may continue to ease after inflation normalizes, thereby limiting the risk of stock declines. Additionally, Goldman Sachs believes that selective physical assets such as TIPS (Treasury Inflation-Protected Securities) and gold are important diversification tools in the face of high fiscal and geopolitical risks.
In light of this, Goldman Sachs recommends five option overlay strategies:
<blockquote>
The stock put spread and CDS (Credit Default Swap) payer spread are used to correct risks,
The S&amp;P 500 index decline/euro/dollar decline mixed strategy is used to cope with re-inflation setbacks,
Gold and dollar call options are used to address geopolitical risks,
Put options on assets exposed to Asian emerging markets are used to manage tariff risks,
Tail hedging for European/Asian emerging market stocks.
</blockquote>
In summary, Goldman Sachs advises investors to adopt a more balanced asset allocation strategy to cope with potential market volatility and tail risks, that is, &#34;balanced strategies outperform tail risks.&#34;
<h2>Stock Market - The Year of Alpha</h2>
Goldman Sachs defines the coming year as the &#34;Year of Alpha.&#34; Due to the unusually high market concentration, Goldman Sachs recommends that investors focus on diversification to enhance risk-adjusted returns.
Although U.S. stock valuations are close to the high levels seen at the end of the 1990s tech bubble and late 2021, Goldman Sachs believes that as long as macro conditions support it, U.S. stock valuations may remain elevated. They expect strong GDP growth, continued strength in large tech stocks, and lower corporate tax rates to drive an 11% return for the S&amp;P 500 index next year.
Despite the market already pricing in a favorable macro backdrop, Goldman Sachs' Risk Appetite Indicator shows that market sentiment remains high, increasing vulnerability to negative growth and interest rate shocks.
In this context, Goldman Sachs recommends that investors maintain a moderate overweight in the U.S. and Asian markets, particularly Japan, while holding a neutral stance in European markets. Goldman Sachs believes that despite high valuations, strong earnings growth and healthy corporate balance sheets will continue to drive shareholder returns, especially in the U.S. market.
Goldman Sachs expects global equities to deliver a 9% price return and an 11% total return over the next year, with these returns primarily driven by earnings growth rather than valuation expansion.
Due to weak economic activity, tariffs, constrained margins, and fluctuations in commodity prices, Goldman Sachs expects the return for the European STOXX 600 index to be only 3% next year.
<h2>Government Bonds Continue Rate Cut Trades, Focus on Short-Term Bonds, Beware of Credit Bond Defaults</h2>
Over the next year, Goldman Sachs maintains a moderately bullish stance on the government bond market.
The report anticipates that due to expected further rate cuts and a steeper yield curve, government bonds will provide excess returns relative to cash. Goldman Sachs expects major central banks to continue cutting rates, with the exception of the Bank of Japan, predicting that by the end of 2025, policy rates will be on average about 125 basis points lower than current levels.
In this context, Goldman Sachs prefers to hold shorter-duration bonds as they provide better hedging effects. Additionally, Goldman Sachs believes TIPS are attractive in multi-asset portfolios as they offer the ability to hedge against inflation risks, which are not fully reflected in front-end pricing.
In contrast, Goldman Sachs takes a cautious stance on the credit market due to still high valuations. Although credit spreads are very narrow, overall yields remain relatively attractive—with expected total returns slightly above government bonds.
Goldman Sachs predicts that by the end of 2025, the 12-month trailing issuer-weighted high-yield bond default rates in the U.S. and Europe will approach 3.0% from the current levels of 2.6% and 2.9%, respectively.
<h2>Commodities - A Firm Choice for Gold?</h2>
Goldman Sachs maintains a neutral stance on the commodity market for the coming year, advising investors to maintain &#34;selective investments&#34; and hedge against tail risks.
The institution forecasts a total return of 8% for the Goldman Sachs Commodity Index (GSCI) by the end of 2025 (12% excluding agriculture and livestock).
Goldman Sachs expects Brent crude oil prices to remain in the range of $70-85 per barrel (current level is $72.5 per barrel), and the risk of oil prices breaking out of this range is increasing due to potential supply disruptions from Iran and mid-term tariff-related backup capacity and demand risks.
Goldman Sachs' bullish stance on gold is particularly prominent, expecting gold prices to reach $3,000 per ounce by the end of 2025, which is 13.3% higher than the current trading price. Goldman Sachs stated in a previous report that gold is the &#34;Top Trade&#34; choice for coping with inflation and geopolitical issues, with structural drivers coming from central bank demand and cyclical drivers from Federal Reserve rate cuts.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/0546a519-85c6-450f-9f7e-3fbbd2d58972.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/0546a519-85c6-450f-9f7e-3fbbd2d58972.png"/>
Among base metals, Goldman Sachs is more optimistic about copper and aluminum rather than iron ore, citing a shift in Asian demand from real estate construction to green energy, along with changes in supply fundamentals.
<h2>Currency Market - Dollar Dominance?</h2>
Finally, in the currency market, Goldman Sachs believes the dollar will remain strong next year, and investors should brace for &#34;a longer period of a strong dollar.&#34;
The report notes that although there were previous expectations for a gradual depreciation of the dollar, it is expected to maintain its high valuation for a longer time due to support from the Trump administration's policy mix, including increased tariffs and loose fiscal policies.
Goldman Sachs believes that the strength of the dollar may trigger intervention measures from other countries and occasionally lead to fluctuations in the foreign exchange market when dollar officials comment on the currency. However, considering the macroeconomic policy mix and current market momentum, Goldman Sachs expects the dollar to continue to strengthen.
<blockquote>
We are still in a &#34;dollar world,&#34; as the &#34;challengers&#34; to the dollar find it difficult to present better arguments
</blockquote>

Considering the outlook for rising tail risks such as Trump's tariffs and geopolitical issues, Goldman Sachs advises investors to maintain a moderately risk-on stance in asset allocation while keeping a balanced multi-asset investment portfolio: reduce allocations to highly concentrated and overvalued U.S. stocks, focus on Asian stocks such as those in Japan, short-term government bonds, and the U.S. dollar, while gold remains the best hedging tool

- In 2024, U.S. tech stocks and European bank shares performed well, while Bitcoin surged due to Trump's return to politics, and gold outperformed last year.  
- Looking ahead to 2025, Goldman Sachs predicts stable global growth and declining inflation, advising investors to maintain a balanced risk posture amid high asset valuations and geopolitical uncertainties.  
- The firm emphasizes the importance of diversification, particularly through TIPS and gold, to mitigate potential market volatility and tail risks.

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Goldman Sachs

Beware of inflation rising again! Goldman Sachs outlook for global investment in 2025: U.S. stocks are too expensive with limited allocation, gold remains the best hedging option