<p>Recently, Goldman Sachs hedge fund manager Tony Pasquariello and others conducted a detailed analysis and discussion on the key issues concerning the U.S. market that investors are most focused on for the coming year.</p>
<p>Overall, Goldman Sachs believes that the U.S. consumer market will remain resilient in 2025, with fiscal deficit levels stabilizing. The Trump 2.0 policy mix is overall pro-growth, pro-business, and pro-market.</p>
<p>In terms of the stock market, Goldman Sachs believes that current U.S. stock valuations are still within a reasonable range, but future expansion space is limited. It is expected that corporate earnings growth will be the main driver of the stock market, with the concentration of the U.S. stock market's upward trend decreasing, while AI themes and tech stocks are expected to maintain their popularity.</p>
<p>In the foreign exchange market, Goldman Sachs expects the U.S. dollar to continue strengthening this year, but the underlying reasons are more important. If the strengthening is driven by escalating trade conflicts or a hawkish stance from the Federal Reserve, the risks are relatively greater.</p>
<h2>How is the condition of American consumers?</h2>
<p>In 2023 and 2024, the biggest highlight of the U.S. economy is the resilience of consumers.</p>
<p>Goldman Sachs economist David Mericle expects that <strong>consumer spending will maintain a robust growth of 2.3% in 2025, with a strong labor market driving real income growth at a rate of 2.5%, which will be the main driver of consumer spending growth.</strong></p>
<p>Additionally, the wealth effect will also have a positive impact, combined with the good financial condition of American households, and the steady rise of the stock market will provide moderate support for consumption.</p>
<h2>What are the characteristics and sequence of the Trump 2.0 policy?</h2>
<p>Mericle believes that Trump may quickly implement previously proposed tariffs and immigration policies after taking office, which could have a negative impact on U.S. GDP, but the subsequent introduction of domestic tax cuts and other policies will bring benefits to economic development.</p>
<p>Goldman Sachs believes that <strong>although the Trump 2.0 policy will be &#34;noisy and unbalanced,&#34; it is overall pro-growth, pro-business, and pro-market, which is beneficial for the U.S. stock market.</strong></p>
<blockquote>
<p>&#34;We expect tariff policies to be implemented quickly, and tightening immigration policies may be partially implemented, but tax cuts will require legislation and take longer. <strong>This means that policies that negatively impact GDP may be introduced before those that positively impact GDP, with an expected net impact on GDP growth of -0.2 percentage points in 2025.</strong>&#34;</p>
</blockquote>
<h2>Will U.S. fiscal issues surface in 2025?</h2>
<p>Pasquariello believes that although the &#34;bond vigilantes&#34; will return in 2024, they will not be fully cleared, and this concern will continue into 2025.</p>
<p>Mericle expects that the Trump administration may fully extend the tax cuts proposed in 2017 and additionally introduce personal tax cuts amounting to about 0.2% of GDP, while federal spending (especially in defense) may increase—<strong>the overall fiscal deficit as a percentage of GDP may remain stable.</strong></p>
<p>However, Mericle still worries about the sustainability of U.S. finances, stating: Currently, the ratio of major deficits to GDP in the U.S. is 5% higher than the &#34;full employment level&#34; historically, the debt-to-GDP ratio is close to historical highs, and real interest rates have also reached historical highs</p>
<h2>Should investors be concerned about the tightening of the U.S. financial environment?</h2>
<p>Since the December FOMC meeting, the hawkish tone of the Federal Reserve, the strengthening of the U.S. dollar, the decline of U.S. stocks, the widening of credit spreads, and the rise in U.S. interest rates have all posed obstacles to economic growth.</p>
<p>Goldman Sachs' Ryan Hammond believes that <strong>when bond yields rise significantly within a month (over two standard deviations), the stock market typically declines.</strong> In the past month, bond yields have risen sharply, while market expectations for economic growth have remained largely unchanged.</p>
<h2>Is there a risk of &#34;perfect pricing&#34; in the U.S. stock market?</h2>
<p>Pasquariello stated that although current U.S. stock valuations are at historical highs, they remain within a reasonable range, and investors' tendency to be &#34;overly obsessed&#34; with valuations may lead to losses.</p>
<p>How significant is the potential risk of valuation? Ryan Hammond indicated that based on the current macro environment and company fundamentals, Goldman Sachs' model shows that the price of the S&amp;P 500 index is roughly in line with fair value. In the future, <strong>valuation expansion is expected to be limited, and earnings growth will become the main driver of stock price increases.</strong></p>
<h2>How dependent is the U.S. stock market on AI themes?</h2>
<p>Ryan Hammond noted that Nvidia and &#34;mega-cap&#34; tech companies (Microsoft, Google, Meta, Amazon) contributed 41% of the total return of 25% for the S&amp;P 500 in 2024. Meanwhile, the median stock under the S&amp;P index still achieved a return of 12%.</p>
<p>Hammond further pointed out that history shows that <strong>in the 12 months following a peak in concentration, the S&amp;P 500 index has more instances of rising than falling.</strong> By 2025, investors' focus may <strong>shift from AI infrastructure to AI-enabled revenue.</strong></p>
<h2>Where does AI stand in the build/experiment/deploy/return sequence?</h2>
<p>Goldman Sachs expert George Lee stated that <strong>2025 may be a year of &#34;deployment and scaling&#34; for AI,</strong> as companies will begin to seriously deploy AI tools and reap actual value. However, the rapid ongoing development of this new technology also makes its implementation in the corporate environment challenging.</p>
<p>Lee expects that by 2025, AI technology will continue to make significant progress (perhaps exceeding most people's expectations), and evidence of corporate value realization will become increasingly abundant.</p>
<h2>What is the positioning/fund flow in the U.S. stock market?</h2>
<p>Scott Rubner believes that January is typically the month with the highest inflow of funds into the stock market for the year, and hedge funds also tend to increase their overall exposure in January, thus improving the technical outlook for the stock market.</p>
<p>Additionally, retail investors, after experiencing record trading volumes in 2024, may increase trading through short-term options at any time.</p>
<h2>Will 2025 be a big year for mergers and acquisitions?</h2>
<p>Goldman Sachs M&amp;A expert Stephan Feldgoise believes that geopolitical risks, inflation risks, and other factors still pose obstacles to corporate mergers and acquisitions, while regulatory risks seem to be normalizing, but transactions will still be subject to scrutiny consistent with historical periods.</p>
<p>Overall, <strong>considering factors such as above-trend economic growth in the U.S. and a loosening of monetary and regulatory environments, there is reason to remain optimistic about corporate mergers and acquisitions.</strong></p>
<h2>Will the Japanese stock market become the hidden winner of Trump 2.0?</h2>
<p>Bruce Kirk stated that Goldman Sachs' baseline scenario for 2025 (low risk of a U.S. recession, robust global economic growth, and a strong dollar) is favorable for the Japanese stock market.</p>
<p>Specifically, Kirk emphasized focusing on areas of the Japanese stock market with clear policy direction, <strong>particularly optimistic about stocks related to increased defense spending or continued normalization of monetary policy</strong>, as the new U.S. government may promote Japan to increase defense expenditures.</p>
<h2>Is there a risk of the dollar becoming a &#34;wrecking ball&#34;?</h2>
<p>Karen Fishman expects that <strong>the dollar will continue to strengthen in 2025.</strong> However, if the dollar appreciates too much or too quickly due to a tightening credit environment or rising inflation, <strong>it may put pressure on the assets of emerging market economies and central banks.</strong> A 10% decline in the euro/dollar exchange rate could trigger concerns.</p>
<p>Fishman also noted that the reasons for the dollar's strength are important: if it is due to strong U.S. growth and asset performance, the risks to global liquidity will be lower; <strong>if it is due to escalating trade conflicts or a hawkish stance from the Federal Reserve, the risks will be greater.</strong></p>

<p>Goldman Sachs expects that the U.S. consumer market will remain resilient this year, with the overall level of fiscal deficit stabilizing. The Trump 2.0 policy is generally pro-growth, pro-business, and pro-market, and corporate profit growth is expected to drive U.S. stock prices up, while the dollar will continue to strengthen</p>

- Goldman Sachs analysts, including Tony Pasquariello, predict that the U.S. consumer market will remain resilient in 2025, with a stable fiscal deficit and pro-growth policies under a potential Trump 2.0 administration.  
- They expect consumer spending to grow by 2.3%, driven by a strong labor market and wealth effects, while corporate earnings growth will be the main driver for stock market performance.  
- Concerns about the sustainability of U.S. fiscal health persist, with high debt-to-GDP ratios and potential risks from a strong dollar influenced by trade tensions or a hawkish Federal Reserve.

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This year's most critical issue in the U.S. market, answered by Goldman Sachs' hedge fund chief