Through the Looking Glass

December 30, 2024
Dow: 42,573

This year was an exceptional year for most markets and while every year has surprises, several events played out very close to our predictions. We’ll reflect on our 2024 predictions in early January, but here are some thoughts to consider for 2025:

GLP-1’s – GLP-1 drugs have been a significant breakthrough for those struggling with obesity, offering substantial long-term health benefits to society. However, as the hype settles, we would expect the risks of these drugs to get more scrutiny. Some of the long-term risks may include pancreatitis, gastroparesis, thyroid cancer, bowel obstruction, vision loss, and depression.

Growth Pothole – There are already signs of slowing in the new home market, stemming from both high prices and high mortgage rates. If this flows through to other areas of the economy, we would expect to see GDP dip below 2% sometime in the first half of the year.

Growth Recovery – Following a downshift, we would expect GDP to recover smartly later next year. Real income growth should increase as inflation continues to slow, supporting consumer confidence. Tax and regulatory policy should swing more pro-business. We would expect GDP growth for the year to be above the high 2% range expected for 2024.

Stock Market – This market is very ripe for a correction after the run of the last two years. We would expect it to come early in the year, along with the growth slowdown scare. It is amazing how many strategists predict single digit up years for the stock market when they aren’t that common. We will call for another year of double digit returns. This is the money pick, as it has happened 60% of the time over the last 30 years.

China Fail – China is burdened with a great deal of nonperforming debt. The country may already be in a recession. Foreign investment in China has pulled back, and it will take time to work off the bad debt overhang. Avoid investment in China.

Home Price Correction – Softness is already beginning to appear in housing turnover. New home sales have slowed and inventory is building. Home mortgages near 7% are a drag, and those should drift down during the year. National home prices may still increase in the low to mid-single digits in 2025, as the housing market is very localized. Cities that have had booms, like Denver, Austin, and Orlando, may see double digit corrections.

Private Debt Problems – We called for a correction here last year, and it did not happen. It is still a case of far too much money being pumped into an area with little oversight and a high fee structure, along with low liquidity and low transparency on prices. This is usually a recipe for eventual disaster. Retail products are available that are backed by illiquid loans. Distribution to retail usually means the end may be near.

Immigration Backlash – This is happening in the United States, and it will continue to play out in other major countries, including Canada, France, U.K., and Germany. The political upheaval currently experienced by these countries is mainly driven by immigration concerns, and multi-party countries are having difficulty forming governments. The natural result of immigration concerns will be the continued rise of Nationalist parties in many of these countries.

Inflation – Inflation should continue to drift lower, along with the Fed Funds rate and rates across the yield curve. This will also be supportive to the equity markets and smaller capitalization companies. We have seen in 2024 that the economy and markets can survive 3% inflation. Lower inflation should be a bonus.

Trump Agenda Slowed – Perhaps Congress’ greatest skill is blowing a lot of hot air while accomplishing nothing. Trump does enter with some momentum, so it will be interesting to see what he prioritizes in terms of legislation in the first six months of his administration. The margins are tight, so he will have to give ground in some places to push through his major initiatives. Congress is always focused on the next election, and since the party margins are slim, we may see coalitions developing between the most conservative Democrats and the most liberal Republicans.

 

Thank you for the opportunity to work with you and we wish you a healthy, happy and prosperous New Year!

 

Random Thought: “The music of your youth stays with you throughout your life.”  – Dick Clark

 

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