Goldman Sachs: The trading secret of the US stock market in 2025 is hidden in this book written by Trump in 1987

Goldman Sachs believes that the secret to trading U.S. stocks in 2025 lies in a bestselling book written by Trump.

This bestselling book, titled "The Art of the Deal," was co-authored by Trump and writer Tony Schwartz and was first published in 1987. The book details Trump's trading and negotiation strategies in business areas such as real estate, including his expertise in leveraging media and public opinion to promote himself.

“This book provides a roadmap for our strategy recommendations for 2025,” Goldman Sachs' David J. Kostin wrote in a report released on Monday. The report, titled "2025 U.S. Stock Outlook: The Art of the Deal," draws on the business principles advocated by Trump and further summarizes five key trading secrets for U.S. stocks in 2025:

Think Big — Continue to bet on the "Mag 7," Maximize Your Options — Focus on M&A concepts, Low Cost & High Risk — Look for value in small and mid-cap stocks, Results-Oriented — Pay attention to AI applications and monetization, Protect Downside Risk Upside Risk Will Take Care of Itself — Overweight stocks that provide downside protection.

Goldman Sachs expects that in 2025, the "Mag 7" will continue to outperform the S&P 500, and companies that can translate AI technology into actual revenue and profits will perform well in the stock market. Investors should also pay attention to the M&A market, small and mid-cap stocks, and cyclical stocks that can provide downside protection.

“Think Big”

Trump emphasizes that successful deals often stem from bold ideas and grand visions. Reflecting this in investments, Goldman Sachs believes that investors should focus on large companies that can significantly impact the market, such as the backbone of U.S. stocks, the "Mag 7."

Goldman Sachs points out that these seven companies (Amazon, Apple, Google, Meta, Microsoft, NVIDIA, Tesla) have a total return of 148% since the end of 2022, while the total return of the other 493 stocks in the S&P 500 is 35%.

These companies account for more than half of the S&P index's increase over the past two years. Goldman Sachs expects that in 2025, these stocks will continue to outperform the S&P 500, but the gap will narrow to 7 percentage points, the smallest gap in seven years.

Additionally, Goldman Sachs predicts that the earnings growth gap between "Mag 7" stocks and other S&P index stocks will narrow to 6 percentage points in 2025, significantly down from 30 percentage points in 2024.

“Maximize Your Options”

Trump mentions that successful negotiators do not easily limit themselves to a single deal or method but maintain multiple options to increase the likelihood of success.

In short, diversification in investments to spread risk. Goldman Sachs points out that this strategy primarily focuses on the M&A market and suggests that investors consider investing in companies with a high probability of being acquired.

Goldman Sachs expects that by 2025, cash M&A spending by S&P 500 constituents will increase by 20%, reaching $325 billion. The volume of M&A transactions is expected to further increase due to high stock valuations, as stock payments become an attractive alternative to cash payments Goldman Sachs has compiled a basket of 62 U.S. merger candidate stocks index (GSRHACQN), which outperformed the equal-weighted S&P 1500 index during the Trump 1.0 period (15% vs. 12%), with an annualized excess return of 300 basis points.

“Low Rent, High Stakes”

Trump often emphasizes finding value in overlooked places, investing during market downturns, and taking risks as part of successful trading, but these risks should be controllable and manageable.

Goldman Sachs summarizes this as “Low Rent, High Stakes,” with the strategy primarily focusing on stocks of companies related to the revenues of U.S. small and medium-sized enterprises.

Goldman Sachs expects that as the operating environment improves, the optimism and spending of small and medium-sized enterprises will increase in 2025, thereby enhancing the revenues and valuations of related companies.

The report mentions that the National Federation of Independent Business (NFIB) small business optimism index is currently at a historical low, similar to the low point in April 2020. Goldman Sachs anticipates that with Trump being re-elected as president, this index will significantly rise in the coming months, similar to the situation after Trump was first elected in 2016.

It is noteworthy that small business optimism is often very sensitive to the political environment in Washington, particularly during Republican administrations, where small business optimism tends to be higher.

“Deliver the Goods”

Trump also believes that successful trading is not just about the process; the results are more important, and the final outcome is the key measure of trading success.

In Goldman Sachs' view, the current U.S. stock market most suitable for this strategy is the AI sector, especially companies that are in the third phase of AI development.

Goldman Sachs divides the development of AI into four phases, with the third phase focusing on companies that can translate AI technology into actual revenue and profits. These companies mainly come from the software and services industry and are usually at the forefront of promoting AI applications and transformations.

The report points out that the returns of second-phase stocks related to AI infrastructure have already exceeded profit growth, reflecting the market's optimistic expectations for future profits. The returns of third-phase stocks will rely more on actual profit growth rather than valuation growth.

“Protect the Downside and the Upside will take care of itself”

Trump believes that ensuring a favorable position during negotiations to minimize losses and maximize gains, maintaining flexibility to respond to changes, preparing exit strategies, and using leverage cautiously can control downside risks. Once downside risks are effectively controlled, potential gains will naturally increase when the market performs well.

Goldman Sachs believes that the current economic backdrop is favorable for cyclical stocks, but the stock market has significantly priced in this view. Therefore, they recommend that investors maintain exposure to cyclical stocks while also focusing on those that can provide downside protection Goldman Sachs gives an overweight rating to the software and services, materials, and utilities sectors:

Software and services are not affected by economic growth or interest rate changes, thus providing long-term growth potential and being the main beneficiaries of the transition from the second phase (infrastructure) to the third phase (AI-driven revenue) of AI.

Materials belong to value cyclical stocks, which have underperformed due to concerns over growth in Asia, but low valuations may have already reflected some pessimism, increasing the likelihood of asymmetric upside within 12 months.

Utilities can serve as a hedge against growth risks, providing defensive exposure if economic growth slows and bond yields decline