As we step into 2025, Wall Street's leading institutions, particularly Goldman Sachs, paint an uplifting vision for economic growth and performance. With projections of 2.4% GDP growth surpassing consensus expectations, the outlook is supported by projected consumer spending and stable unemployment at 4%. The projected decline in core PCE inflation to 2.1% could set the stage for the Federal Reserve to implement three strategic rate cuts throughout the year, hopefully catalysing the interest of investors to move from money market funds into equity, setting off market momentum and economic expansion.

The equity markets are entering 2025 with considerable momentum, following an impressive performance in 2024 that saw the S&P 500 and Nasdaq surge by 23.31% and 24.88%, respectively. This strength is particularly noteworthy given the evolving landscape of artificial intelligence, with anticipated launches of xAI's Grok 3 and Meta's Llama 4 promising to reshape the technology sector. The historic inclusion of Coinbase in the S&P 500 further reinforces the mainstream acceptance of digital assets, specifically the cryptocurrency market.

The commodity market, particularly gold and oil, continues to show remarkable strength even in the face of a stronger dollar, with Goldman Sachs projecting an ambitious target of $3,000 per ounce by year-end for gold and oil to stabilise at $70 per barrel. This bullish outlook is supported by sustained central bank gold purchases, especially from China's PBoC, while the oil market is influenced by record U.S. production levels and evolving Chinese demand patterns.

In the currency markets, the dollar's trajectory remains a focal point, building on its previous year's gains with rising yields proportionate to Fed rate cuts. The incoming Trump administration's policies are expected to influence both growth and inflation trajectories, while the yen's position near five-month lows reflects ongoing pressure despite recent modest rebounds. Although trade tensions with China remain a concern, as highlighted by Wells Fargo, there's growing optimism that a more moderate approach to tariffs might prevail, with the promise of easier regulation supporting more balanced market conditions for large-cap portfolio managers.

Source: Reuters, FRED
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