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Goldman Sachs has issued a warning about the U.S. stock market, highlighting potential risks as 2025 approaches. The firm indicates a 30% likelihood of significant corrections due to various factors affecting market stability.
The firm points to stretched valuations, ongoing inflation, and political uncertainties, particularly with the incoming President considering new tariffs. The S&P 500, which experienced a notable 23% gain in 2024, has only seen a modest 0.6% increase so far this year, raising concerns about its stability.
Goldman Sachs emphasizes that the current market is priced for perfection, leaving little margin for error. With rising inflation and escalating trade policy uncertainties, potential risks are significant. A combination of earnings misses, geopolitical shocks, or unexpected inflation could lead to a market downturn. To address these risks, the firm suggests the following hedging strategies:
- Short-dated S&P 500 put spreads for near-term protection
- Longer-dated puts for those expecting a deeper recession
- Hybrid strategies, such as S&P 500 down/EURUSD down, for investors monitoring interest rates and trade risks