Goldman Sachs Asset Management has just released its 2025 Outlook report “Reasons to Recalibrate.”

A new report by Goldman Sachs Asset Management shows that interest rate easing cycles, geopolitical risk, and post-election policies are giving investors reasons to refocus. 

The report suggests that using a broad, diverse, and global toolkit across public and private markets could help to deliver positive outcomes and navigate risk. Ample reasons for global investors to land on bonds, broaden equity horizons, explore alternative paths, and pinpoint opportunities amidst disruption include the fact that a US soft landing in sight, against a backdrop of late-cycle opportunities and lingering tail risks.

Slowing UK growth and normalising inflation could also result in a quicker pace of interest rate cuts, the firm said. Central banks, including the Bank of Canada and Sweden’s Riksbank, are also moving in a dovish direction. Japan remains an outlier. 

A more dovish US Federal Reserve has also opened the door to easing across emerging markets. Emerging market growth has remained relatively resilient, with inflation far from 2022 peaks, the firm said. 

Bonds
“When the Fed cuts rates, history suggests the bond market is where investors should want to be,” the asset manager continued.  Moving away from cash to fixed income should prove rewarding in 2025, potentially with broad based fixed income gains. Active investment strategies, diversification, and strong risk management will be paramount. 

While the US election has widened the range of possible economic outcomes, the firm still expects the Fed to cut rates again in December and early 2025. The main fixed income risk is renewed inflation, which could slow down the pace of easing.  

“Our analysis suggests that companies in the investment grade credit market can remain resilient in 2025, much like their resilience to higher rates in recent years. This reflects a healthy starting point for credit metrics and the ability to be more selective about new investments or M&A activity,” Simon Dangoor, head of fixed income strategies at Goldman Sachs Asset Management, said. 

“Investment grade bonds stand out as an option for enhancing returns, striking a balance between earning income and managing risk,” added Lindsay Rosner, head of multi-strategy fixed income at Goldman Sachs Asset Management. 

The firm also believes that income opportunities can be found in the green bond market, one of the fastest-growing segments in fixed income, to capitalize on higher yields.

Equities 
Goldman Sachs believes that US equities remain the most attractive: “A well-rounded, differentiated approach in the US large and mid-cap space in 2025 may lead to positive returns.” Other wealth managers like Pictet Asset Management also favour US equities in 2025. See more commentary here. 

“There is a potential inflection point for small caps, driven by rate cuts and more domestic trade policy. US small caps have often outperformed large caps when central banks started rate cuts, especially in soft landings, and smaller companies may benefit from rate reductions as interest payments decrease,” Greg Tuorto, head of small/SMID cap equities at Goldman Sachs Asset Management, said. 

“Outside the US, healthcare, clean energy, and luxury goods companies that do not have a US equivalent appear attractively priced. Across non-US developed markets, we see opportunities in dividend-paying companies with sustainable returns on invested capital, strong cash flow generation, a track record of capital discipline, and consistent payout histories,” Alexis Deladerrière, head of international developed market equity at Goldman Sachs Asset Management, added. 

“With strong corporate earnings growth at fair valuations, emerging market equities should bring significant opportunity. Asian equity markets are diverging with risks around China shares growing on the prospect of new tariffs, while India still has strong fundamentals,” Ashish Shah, chief investment officer of public investing at Goldman Sachs Asset Management, continued. 

“Elsewhere, markets like Taiwan and South Korea contain semiconductor companies crucial to artificial intelligence development. Japanese equities have been driven by strong earnings, corporate governance momentum, and an inflationary environment shift, but with headwinds. Countries with favourable demographics, such as Mexico, are also compelling,” Shah said.

Private equity and private credit 
The firm believes that private markets continue to evolve and attract a broader base of investors seeking to complement traditional market exposures. “A stabilising macro backdrop and a recalibration of investor expectations should be a catalyst for a more normalised environment for private equity buyouts in 2025,” Brad Gross, global co-head of private equity at Goldman Sachs Alternatives, said. He sees signs that this process is already underway, putting the industry in a better position for exits and new capital deployment, albeit with some parts of the market more compelling than others.  

In venture capital and growth equity, valuations and growth expectations have normalised in many parts of the market, and the muted fundraising environment of the past two years brought down the level of dry powder down from 2023 records. These factors make for a more constructive environment for deploying new capital in an asset class that offers access to innovative companies in the highest growth phase of their trajectories. “There is also a growing need for growth equity capital as venture-backed companies stay private for longer,” the firm said. 

“Declining rates may paradoxically prove constructive to private credit, mitigating the supply/demand imbalance and normalising spreads,” Greg Olafson, global head of private credit at Goldman Sachs alternatives, added. 

“An equilibrium between demand for public and private credit should arise as well, in which companies will choose between the lower cost of capital available in public markets versus a more tailored capital structure and financing solution in private markets,” he said. Overall, he anticipates ongoing interest in private credit and expects interest to expand across areas, such as directly originated investment-grade credit, and asset finance. 

Real estate activity should accelerate 
“As in other asset classes, property fundamentals drive returns through market cycles. The dynamics observed in real estate today are driven by the secular trends of demographics, technology, and the drive towards sustainability, all of which should continue to shape global real estate demand. The attractiveness of assets reflecting these themes will differ by region and individual asset quality,” Jim Garman, global head of real estate at Goldman Sachs alternatives, continued. 

Sustainability
The firm highlighted how a re-focus is emerging on materiality, with investors going “back to basics” to sharpen the focus on financial returns. It is the view of Goldman Sachs Asset Management that the broadening investable universe will lead to greater real-world impact and heightened performance benefits linking sustainability with stock performance and quantifiable impacts. “Decarbonising the global economy will require channelling capital into sectors with higher emissions – such as producers  of cement, chemicals, and steel – to make real progress,” the firm said.