The start of a new year is the perfect opportunity to share our insights on what we anticipate for 2025. While our crystal ball might not be fully functional, we prefer to think of these as informed perspectives rather than outright predictions. Regardless of how accurate they prove to be, these are the guiding views shaping our approach as we step into the year ahead.
Stock Market
The stock market initially rallied following the election but has since surrendered nearly all those gains as concerns grow that the economic challenges ahead may prove insurmountable. We believe this more recent market behavior better reflects the current reality. Since its all-time high in January 2020, just before the onset of COVID, the S&P 500 has delivered an impressive annual return of approximately 15%, well above its long-term average. However, we suspect this level of outperformance is likely to revert to more normalized returns. Whether this adjustment takes the form of a sharp pullback or a prolonged period of subdued performance remains uncertain.
Predicting when such a shift might occur is equally challenging. Alan Greenspan famously warned of “irrational exuberance” in December 1996—over three years before the dot-com bubble finally burst. Needless to say, we have no illusions about being any better at forecasting than he was.
Economy
The broader economy is gradually recovering from a sluggish 2023 and the first half of 2024. While no official recession has been declared, this is largely attributed to the resilience of non-farm payroll numbers reported by the Bureau of Labor Statistics (BLS). However, significant questions have arisen regarding the reliability of this data in recent years, as it has sharply diverged from its historical alignment with private forecasts by the Conference Board and the lesser-followed BLS household payroll survey. Regardless of the reasons for this discrepancy, many indicators point to soft employment conditions, and leading economic metrics have suggested an imminent recession. As a result, the economy feels as though it is emerging from a recession—even if one has not been officially recognized.
We anticipate that the shift in the presidential administration, along with changes in congressional control, will reshuffle the deck of winners and losers in the ongoing recovery. However, barring any significant shocks, we expect the economy to continue expanding. An interesting dynamic of this growth is the potential for substantial economic expansion to occur alongside stagnant employment, driven by the massive efficiency gains that AI is projected to deliver. While we believe the full impact of these advancements will unfold beyond 2025, headlines highlighting this trend are likely to become increasingly frequent. For 2025, we expect employment to remain relatively steady, with economic growth offsetting the downward pressure on jobs resulting from these efficiency gains.
While the economy and markets are on paths to recovery, the forces driving these trends will have far-reaching implications. In the next installment, we’ll explore the role of interest rates, inflation, and their influence on commercial real estate in shaping 2025.
Stay tuned!
