When the trading year comes to an end, some of Wall Street’s biggest firms tend to start rolling out their projections and outlooks for the coming year, and Goldman Sachs has been the latest one to do so here. Investors need to keep track of what these big firms are doing and recommending to their audiences, as some might be bluffing, and some might be insiders "talking their book" just to get the masses to adopt their view.
Based on several economic indicators and other trading indicators, it looks like Goldman Sachs is talking its book right now rather than bluffing the market into a positioning or behavior that benefits the bank at the expense of Main Street. Knowing this, investors will want to grab a pen and paper for this analysis, as a lot of what has been said in the bank’s 2025 macro outlook report is not what it seems.
At the end of the day, these are the three main areas that Goldman Sachs wants you to be in (and support their positions). Bonds, through the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), energy stocks through The Energy Select Sector SPDR® Fund (NYSE:XLE), and even industrial stocks made up of net exporters in the United States through the Industrial Select Sector SPDR Fund (NYSE:XLI).
1. Stocks Might Be Overvalued, Buy Bonds
Goldman Sachs could have just said this, but they decided to break it all apart in a very dry and cut corporate way. However, it all becomes clear for those willing to dissect the report’s language. Goldman talks about the difference in bond yields today compared to S&P 500 yields, which led them to believe there’s an overvaluation in stocks.
According to the data compiled and explained in the report, there are higher chances of a stock market decline than of another bull run. They also mention that today’s bond yields are not in line with where United States GDP growth rates and inflation will be in 2025, so a mispriced opportunity is present.
The report measures the future inventory levels of big commercial institutions and other participants in the market, so it is an important gauge to track.
Turns out, a lot of the commercials (big banks and prime brokers) are now as short S&P 500 futures as they’ve been since 2007, and everyone knows what happened next. At the same time, inventory levels for 10-year treasury bonds are on the rise, it would seem that Goldman is part of this crowd shorting stocks and buying bonds.
2/ Oil: The Best Commodity Bet
Goldman also mentions that commodities might make a great addition to portfolios in 2025. Still, they decided to focus on one specific product. Crude oil, as they point out, has a lot of supply shock tail risks, which is English for a high probability of supply becoming tight and sending prices higher.
No wonder Warren Buffett has bought up to 29% of Occidental Petroleum (NYSE:OXY) over the past two quarters, or why J.P. Morgan Chase has decided to build a $730.8 million stake in the energy ETF as of December 2024. Even Paul Tudor Jones said in a recent CNBC interview that oil is unbelievably cheap.
While most investors would look to gold in this situation, the precious metal has showcased a significant premium in recent months, which is now cooling off as the prospect of inflation wanes alongside geopolitical conflicts. Therefore, on an apples-to-apples comparison, oil offers the best risk-reward ratio in the world of commodities.
In recent weeks, hedge funds have also been heavily positioned in oil futures, making aggressive bets that the price per barrel could soon pop above its resistance. This article provides the entire breakdown and list of stocks that might be better suited for market-beating returns.
3. Net Exporters Will Outperform in 2025
The most surprising part of this report is how Goldman spoke about currencies. They expressed that the local currency, the dollar, has built tail risks that would send emerging currencies and stocks higher if they become realized. What this means is that stocks like Alibaba (NYSE:BABA) in China will see a monster rally if the dollar falls.
o wonder Michael Burry and David Tepper have made it their biggest portfolio position. But what happens with a lower dollar as well? Foreign buyers now have a relatively stronger buying power to purchase American exports, so the manufacturing sector becomes a good place to be.
According to the latest manufacturing PMI report, new orders were the most explosive segment in the past 26 months, meaning that many industries in the United States are getting ready for a new potential exporting wave. Investors can also note that Wall Street is boosting these three stocks on the back of this exporting theme.