Inflation fears and interest rate hikes were the stories of 2022 and most of 2023. But 2024 saw those fears dissipating as concerns of a hard economic landing were overblown. Most economists now expect positive global growth through 2025 and beyond, with lower interest rates, and a strong US economy in particular. The combination of falling rates and continued economic growth has historically been associated with strong equity returns. As the chart below shows, US interest rate cutting cycles have generally been associated with rising equity prices so long as recession is avoided. We do not see a recession in the US as being likely – at least not for the year ahead.
Rate cutting cycles associated with rising equity prices so long as no recession

Source: Goldman Sachs
Despite this favourable backdrop, three factors should be kept in mind:
- The speed of the recent rise in stock prices has reflected much of the good news that is expected on growth.
- Already high valuations will limit forward returns.
- Unusually high market concentration increases portfolio risks – concentration has increased by geography (the US is increasingly dominant), by sector (technology has generated most equity returns), and by stock (the 5 biggest stocks in the US account for 25% of the index).
The powerful rally in US equity prices in recent months leaves equities “priced for perfection”. The S&P 500 rose 23% in 2024 following a 24% return in 2023. The surge in stock prices in the past two years has been in the 93rd percentile over equivalent periods in the past century. While we expect equity markets to return positively over the year, driven by earnings growth, US share prices are increasingly vulnerable to a correction caused either by further rises in bond yields and/or disappointments on growth in economic data or earnings.
Rise in the S&P 500 in the past two years has been one of the strongest since 1928

Source: Goldman Sachs
Much of the rise in stock prices that we have seen over the past couple of years has reflected better fundamental growth than investors had feared. Nevertheless, apart from Asia and Emerging Markets, valuation increases (expansion of Price to Earnings multiples) have significantly contributed to performance throughout 2024, accounting for nearly half the return for the MSCI AC World.
Return contribution since start 2024 in local currency

Source: Goldman Sachs