The economy in 2025 faces slow growth and vulnerabilities as investors weigh the possibility of a recession.
Citi Wealth chief investment strategist and chief economist Steven Wieting, Investopedia editor in chief Caleb Silver, and Zacks Investment Management client portfolio manager Brian Mulberry join Market Domination host Josh Lipton to discuss market sentiment and tariff impacts.
To watch more expert insights and analysis on the latest market action, check out more Market Domination here.
How do you see the economy evolving in 2025?
I mean, I think the good news is, is that if you were to think about this, this is not a natural event. This isn't, you know, we massively overbuilt the recovery. We were far too optimistic about consumer demand. You know, we're housing production, for example, it's about, you know, 30% lower than it was 15 years ago with the number of households up 20%. Um, we do, we do have some vulnerabilities. We did pull in imports pretty fast. We didn't really overinvest. AIMI's been quite strong. It's very limited in terms of the number of companies, but I would think that there is some payback here in terms of production manufacturing. I don't think we have to fall that much, but it's certainly going to suppress growth.
So your bottom line, you see slowing growth even, but you're not using the R word. Your base case isn't recession.
Well, you know, one of these things that you pile on, and we don't know how much to pile on is, I don't think we came into this with an unhealthy economy with a lot of vulnerabilities. So to be able to absorb a one-off shock, but if it creates a life of its own, right? That that's the possible, right? When you get a situation like this.
Brian, I want to bring you in here as well. What's interesting about the markets, Brian, is the way they seem to have been kind of firming here. I wonder if that's because you think investors have had April second circled on their calendar and they think, you know what, we don't know exactly what's coming, but maybe we're going to get some clarity, we're going to get some specifics finally. And it could be this this clearing event for the market. Do you think that's in the bloodstream here, that's what's going on?
Absolutely. I mean, we've already had a lot of downside priced into the market where we are today, just from the pure equity side. And so I think that you've seen that range of outcomes start to get a little bit more established. We kind of have good, bad, and ugly from where we go today, right? Good would be the more targeted reciprocal tariffs that are not as powerful as as an impact as Stephen was just talking about. Bad would be a 20% level tariff across the board, and ugly would be anything north of that, 25 or 30% that impacts the economy even more than expected. But I think we have both the the good and the bad priced in. The ugly is where it would get worse.
What do we see with with earnings growth expectations?
So they've come down. So just like soft data has come down those forward looking sentiment surveys, we've actually lowered earnings expectations at Zacks. We started the year with S&P 500 Q1 earnings up around 10.5%. That's down to about five and a half as we are today. So we are seeing a material impact into expected earnings growth. The silver lining is, it's still positive. It's not yet negative.
Caleb, I want to bring you in here as well, Investopedia. I'm very curious to get your sense. The folks coming to your site, give me a vibe check there. What's the feeling? What's the sentiment? What do you hear?
Very cautious right now. Even though we know individual investors have been putting money to work for the past five to six weeks trying to chase the dip here, catch a falling knife, especially on their favorite stocks, and as they watch them sort of fall into this 10% or so decline, are wondering, is this just the a sell-off, a blow-off of those valuations? The question for both of you who have to actually put money to work here is, is the repricing here that we've seen, the correction, just a letting loose of a lot of that overvaluation? And now you're going to need to reprice again based on what we hear today at 4 o'clock because there may be another leg down. You're talking about profit compression, we're probably talking about margin compression, we're talking about higher costs. This might just be the beginning, or maybe we have found a little support here. What do you think?
Well, coming into this year, our biggest concern was the concentration risk just in the S&P 500, where you were working with roughly a forward valuation of 22 and a half times earnings, and those earnings were driven by seven to 10 companies. And so that was really concentrated. So the biggest risk for us is what was the rest of the market going to look like. So we felt like there we were ripe for a little bit of this correction in terms of the valuation on its own, just a reversion to the mean, long-term average, 17 to 18 times earnings. We're about halfway there, right? We're about 20, 20 and a half at this moment in time. That seems normal on its own, but now we're starting to see a little bit of that earnings energy come out of this market as well.
Yep.
