As 2025 begins, global stock markets are benefitting from a generally supportive environment, but Goldman Sachs has cautioned that current valuations may be overly optimistic, leaving room for potential corrections.
In a note dated January 9, the bank highlighted that fears surrounding high inflation and rising interest rates, which dominated much of 2022 and 2023, have eased. Goldman Sachs now anticipates continued global economic growth into 2025 and beyond, supported by lower interest rates a scenario historically linked to strong equity performance.
Despite this optimistic outlook, Goldman Sachs flagged three major factors that could complicate the prospects for stock markets this year:
- Rapid Price Increases: Recent sharp gains in stock prices have already reflected much of the positive growth expectations.
- High Valuations: Elevated stock valuations may constrain future returns.
- Market Concentration: The current market shows significant concentration in specific areas geographically (dominated by the US), by sector (with technology leading), and by individual stocks (the five largest US companies now represent roughly 25% of the index).
Goldman described equities, particularly in the US, as “priced for perfection,” pointing out that the S&P 500 delivered impressive gains of 23% in 2024 following a 24% rise in 2023.
While the bank expects equity markets to achieve further gains over the year mainly driven by earnings it warns that stocks are increasingly at risk of a correction. Factors such as rising bond yields or weaker than expected economic or corporate performance could trigger such a downturn.
