Goldman Sachs: American households will become US stock buyers next year!

Goldman Sachs analysts expect that by 2025, America's economic strength will drive households to switch from net sellers of stocks to buyers.

However, in a report to clients, the analyst added that since the Federal Reserve is about to begin the expected cycle of interest rate cuts, US households will only “slightly” shift their capital allocation to the stock market from credit to stocks.

The Federal Reserve cut interest rates by 50 basis points last month, to a range of 4.75% to 5.00%, and is expected to cut interest rates even more before the end of this year.

Goldman Sachs analysts wrote, “A stable interest rate close to 4% indicates that investors will continue to have more attractive alternatives than stocks, but to a lesser extent than in the past few years.”

Analysts said mutual funds will be the largest source of stock supply, and these funds are expected to sell US stocks worth 550 billion US dollars next year. Mutual funds pool money from different investors and buy securities. The strategist notes that pension and insurance funds are expected to net sell shares worth $100 billion and $150 billion in 2025, respectively.

Although household investment positions may change, companies and foreign investors are expected to be the biggest source of demand for US stocks.

Goldman Sachs expects the company to buy $1 trillion worth of shares next year, up 18% from 2024, thanks in large part to a surge in share repurchase activity.

Goldman Sachs analysts said, “We expect share repurchase growth to remain strong in 2025, mainly due to the strong 11% increase in the S&P 500 index (earnings per share).”

They ranked foreign investors as the second-largest net buyer of US stocks next year because the dollar is expected to fall. In theory, a weaker dollar could make US stocks cheaper for foreign investors, thereby boosting foreign demand. Analysts said:

“Our forex strategists expect the dollar to gradually depreciate to reflect the persistence but weakening of American exceptionalism, thereby helping to maintain foreign investors' demand for US stocks.”