2025 US Equity Outlook_ The Art of the Deal

Industry and Company Overview * Industry: The report focuses on the US equity market and provides outlook and investment recommendations for 2025. * Key Companies: The report highlights the "Magnificent 7" stocks (AMZN, AAPL, GOOGL, META, MSFT, NVDA, and TSLA) as significant contributors to the S&P 500 index's performance. * M&A Candidates: The report identifies a basket of 62 potential US M&A candidates with a meaningful probability of being acquired. * SMB-Exposed Stocks: The report recommends a basket of 60 stocks with revenue exposure to US small- and medium-sized businesses. * AI Phase 3 Stocks: The report identifies 30 stocks in "Phase 3" of the AI evolution with the potential to monetize AI by generating incremental revenues. Core Views and Evidence * S&P 500 Index: Goldman Sachs forecasts the S&P 500 index to rise to 6500 by year-end 2025, reflecting an 11% price gain and 12% total return with dividends. * Earnings Growth: The report expects earnings growth of 11% in 2025 and 7% in 2026. * P/E Multiple: The report projects a forward P/E multiple of 21.5x at the end of next year, a 1% compression from the current P/E of 21.7x. * Magnificent 7: The report expects the "Magnificent 7" stocks to outperform the S&P 500 index by approximately 7 pp in 2025, the slimmest margin in seven years. * M&A Activity: The report forecasts a 25% year/year increase in the number of completed mergers in 2025. * SMB-Exposed Stocks: The report expects an improving small business operating environment to lift the earnings and valuation of SMB-exposed stocks. * AI Phase 3 Stocks: The report expects investor interest to transition from AI infrastructure to broader AI "Phase 3" application rollout and monetization. Investment Recommendations 1. Think Big: Invest in the "Magnificent 7" stocks and seek opportunities in mid-cap equities. 2. Maximize Your Options: Invest in a basket of potential US M&A candidates. 3. Low Rent, High Stakes: Invest in a basket of stocks with revenue exposure to US small- and medium-sized businesses. 4. Deliver the Goods: Invest in stocks in "Phase 3" of the AI evolution with the potential to monetize AI. 5. Protect the Downside and the Upside will take care of itself: Overweight positions in Materials, Software & Services, and Utilities. Additional Key Points * The report emphasizes the importance of considering a diversified portfolio and taking advantage of periods of low volatility. * The report acknowledges the potential risks associated with high valuations and event risk. * The report provides a detailed analysis of the economic and earnings outlook for the US equity market.