Looking Ahead to the New Year
In 2024 we managed to slip by without a recession, but now let's look at the changes to come, and the questions that remain, about the new year.
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It is hard to believe that this is my last column for 2024. The year has flown by. The U.S. economy managed to avoid recession during the year, despite a slowing job market and significant economic uncertainty. Of course, just over 2.5% gross domestic product growth for 2024 looks far less impressive, considering the federal government ran a fiscal deficit of nearly 7% of GDP for its budget year that closed on Sept. 30. At least that is much better performance than Europe put in during the year as that continent has flirted with recession throughout 2024. I believe we can also be grateful that the war in Ukraine hasn’t escalated into an even larger conflict to this point. One of my biggest wishes is that this region finds some sort of peace before 2025 closes.
There are some fairly easy observations one can make about the early days of 2025. The new POTUS will implement a slew of executive actions upon being inaugurated on Jan. 20. Many will be related to immigration policy. How big an impact that has on the jobs market is an unknown at the moment. Other executive actions will roll back regulations across many areas of the economy. The energy sector should benefit from many of these. Electric vehicle mandates could possibly be ended as well. Most of the new president’s nominations should be confirmed by the Senate in good time, but several might be quite contentious.
From that point forward the future gets quite a bit murkier when it comes to trying to ascertain changes in policy that could have ramifications for the economy and the equity markets. With the president’s party holding a razor thin majority in the House of Representatives, it is tough to see how any major changes get implemented. It might be a slog to just extend the tax cut package that was implemented in 2017 and expires at the end of the coming year. I would love to believe the new Department of Government Efficiency, or "DOGE," initiative leads to major cost reductions across the federal government. But as Milton Friedman famously quipped, "There is nothing so permanent as a temporary government program."
Other efforts along this line such as the Grace Commission, or more recently, the National Commission on Fiscal Responsibility and Reform mostly died quiet deaths.
I do hope we see sincere efforts to address excessive government spending, both as a citizen as well as an investor. Given the 100-basis point back up in the yield on the 10-Year Treasury over the past couple of months, bond investors are getting increasingly nervous about the ballooning debt of the U.S. And after this year’s large, albeit quite top-heavy rally in the equity indexes, I think it is critical those concerns get addressed at least to some degree. My last take on 2025 is this: If rates stay at current levels or rise, it is hard to see stocks advancing further given their large rise over the past two years. At best equities will consolidate their gains and quite possibly give back some of them in 2025.
At the time of publication, Jensen had no position in any security mentioned.
