Goldman Sachs: US households will become buyers of US stocks next year!
Goldman Sachs analysts predict that by 2025, US households will shift from net sellers to buyers of stocks, although the allocation of funds will only "slightly" tilt towards stocks. Mutual funds are expected to become the largest source of stock supply, selling $550 billion of US stocks next year. Companies are expected to buy $1 trillion of stocks, mainly benefiting from the growth of stock buyback activities. Foreign investors will also become the second largest net buyers of US stocks, with the expected depreciation of the US dollar boosting their demand
Goldman Sachs analysts predict that by 2025, the economic strength of the United States will lead households to shift from net sellers to buyers of stocks.
However, analysts added in their report to clients that due to the expected rate-cutting cycle by the Federal Reserve, U.S. households' allocation of funds to the stock market will only "slightly" shift from credit to stocks.
The Fed cut rates by a significant 50 basis points last month to a range of 4.75% to 5.00%, with more rate cuts expected to be implemented by the end of this year.
Goldman Sachs analysts wrote, "A stable rate close to 4% suggests that investors will continue to have alternative investments more attractive than stocks, but to a lesser extent than in recent years."
Analysts stated that mutual funds will be the largest source of stock supply, with these funds expected to sell $550 billion worth of U.S. stocks next year. Mutual funds pool funds from various investors and then purchase securities. Strategists noted that pension and insurance funds are expected to net sell $100 billion and $150 billion worth of stocks respectively by 2025.
While household investment positions may change, companies and foreign investors are expected to be the largest sources of demand for U.S. stocks.
Goldman Sachs expects companies to buy $1 trillion worth of stocks next year, an 18% increase from 2024, largely driven by the surge in stock buyback activities.
Goldman Sachs analysts stated, "We expect strong growth in stock buybacks to continue in 2025, primarily supported by the robust 11% growth in the S&P 500 index (earnings per share)."
They list foreign investors as the second largest net buyers of U.S. stocks next year, as the dollar is expected to weaken. In theory, a weaker dollar could make U.S. stocks cheaper for foreign investors, boosting foreign demand. Analysts stated:
"Our foreign exchange strategists expect the dollar to gradually depreciate, reflecting the continued but weakened exceptionalism of the United States, which should help sustain foreign investors' demand for U.S. stocks."