Goldman Sachs Chairman and CEO David Solomon is optimistic about the business environment and predicts a pickup in capital markets activity this year.
In the latest episode of Goldman Sachs Exchanges, Solomon describes the business outlook as more constructive due in part to regulatory changes. Still, he notes that “the ultimate implementation of the different policy focuses will be important.”
Overall, he adds: “People are excited about the fact that it feels like there's going to be more collaboration toward driving investment and therefore driving growth.”
And capital markets activity — which has run below 10-year averages — should also pick up as business confidence improves. “It improved in 2024, but it still ran below 10-year averages. We'll get back to 10-year averages or better in 2025,” Solomon says.
China's AI development could speed up AI adoption
The launch of a handful of new Chinese generative artificial intelligence models, which reportedly cost less to build than other models, has sent shockwaves through the tech sector. The share price of a basket of AI-related stocks in the US dropped 10% in the first two days of this week.
The development highlights the sheer amount of capital that's been invested in AI by tech giants, as well as the investment that will be needed to scale the technology going forward, according to Goldman Sachs Research. While it will take time to answer those questions, there are signs that the developments in China could lower the cost of running AI chatbot apps and make them more widely available, says Ronald Keung, the head of Goldman Sachs Research's Asia internet team.
“What's clear to us is that lowering the cost of AI models will drive much higher adoption, as it would make the models much cheaper to use in future,” Keung says. “Some of these Chinese models have driven the industry to focus not just on raising the performance but also on lowering the cost.”
Keung points out that Goldman Sachs Research's US and China teams “expect this year to be the year of AI agents and applications” amid growing adoption of the technology. As costs decline and AI models become smarter, Keung says, we may be a small step closer to eventual artificial general intelligence, which is an AI that displays excellence across all human fields of knowledge.
Investors bullish on gold, India
The year 2024 was stellar for US technology stocks, with the companies known as the Magnificent 7 contributing more than half of the S&P 500 index's performance. This year, though, there's less confidence in that strategy, according to a survey of more than 300 attendees at Goldman Sachs' Global Strategy Conference in London. More than 60% said the other 493 companies in the S&P 500 index will perform better.
Meanwhile, respondents see India as the best long-term investment opportunity among emerging markets for the second year in a row. India aims to grow its manufacturing base, and Goldman Sachs Research expects the country's economy to expand an average 6.5% per year between 2025 and 2030.
In commodities, 32% of respondents said gold is the most attractive choice for investors in 2025, a large increase compared to only 5% of respondents giving the same answer last year. A quarter of respondents viewed bitcoin as the most attractive commodity in 2025, down significantly from 39% last year.
US assets could continue to benefit from steady growth
Goldman Sachs' Wealth Management Investment Strategy Group (ISG) has recommended overweighting US stocks since the trough of the global financial crisis (GFC), based on the group's investment theme of "US Preeminence." This view is underpinned by the fact that the US enjoys economic and structural advantages — such as higher productivity, top ranked education institutions and innovation, and dynamic capital markets — that make it the most attractive place to invest.
Over this 15-year period, ISG has also recommended that clients stay invested in US equities. Clients who followed this advice were positioned for strong performance: US equities have outperformed non-US developed markets by 8 percentage points on an annualized basis and emerging market equities by 9 percentage points since the trough of the GFC. In its 2025 Outlook — Keep on Truckin' — ISG reiterates that the "US Preeminence" and "Stay Invested" themes remain intact.
That said, ISG doesn't expect US equities to meaningfully outperform non-US equities over the next five years — and most definitely not by the magnitude seen over the last 15 years. ISG's base case is for the S&P 500 index to deliver an 8% return in 2025 and 5% annualized over the next 5 years. (ISG's forecasts may differ from those of other groups at Goldman Sachs.)
The 2025 Outlook highlights several reasons why investors should favour US stocks over shifting to other allocations:
* Non-US equities: While non-US developed market equities are trading at a historic discount of 54% to US equities, and emerging market equities are at an even deeper discount, ISG believes the lower valuations are justified based on slower economic trend growth, lower earnings per share growth, weaker demographics, and more geopolitical vulnerabilities in non-US developed economies.
* Bonds and cash: ISG expects US equities to outperform both intermediate-duration US bonds and cash in 2025 based on our economic growth forecast of 2.3%.
* Gold and bitcoin: Despite the 27% increase in the spot price of gold and the 123% increase in the price of bitcoin in 2024, ISG doesn't believe that either gold or bitcoin have a strategic role in clients' portfolios. Gold doesn't generate income, and — contrary to popular belief — it's not an inflation hedge. Bitcoin doesn't meet ISG's criteria of an investable asset. For example, it doesn't dampen volatility, provide consistent and reliable diversification benefits to a portfolio, generate steady reliable cash flow on a contractual basis (like bonds), or generate earnings through exposure to economic growth (like equities), the outlook said.
