2025 is here. It seems that as far back as anyone can remember, economists used past indicators to look into the future to make predictions on what to expect. This year, however, seems more unpredictable than possibly ever before. Quantitative trading formulas used to offer insight into what’s to come, based on past behavior. What happens when past behavior becomes unpredictable? Future plans become even more murky, as the result.
Looking into 2024, as late as August of that year, JPMorgan gave a 35% chance of a recession. Yahoo Finance thought there was an 85% chance of a recession in February of last year. Overall, there was a 62% chance of a recession in some near future.
Obviously, those predictions were wrong, as 2024 had some of the strongest market indicators ever seen. GDP increased 3.1% in the third quarter. About 2 million jobs were added, while unemployment remained super low. Consumer spending increased over 3%, the most in some time, even if it led to record credit card debt. Construction spending went up 7.3%. And these were just the ‘behind the scenes’ statistics.
The more obvious ones were even more impressive. S&P 500 finished 2024 with a 23% gain, after finishing 2023 with the same gain, marking the first time, since Bill Clinton was President, that it went up over 20% two years in a row. Nasdaq went up 28.6% and Dow was just shy of a 13% increase. Apple’s market cap grew by 39%, almost reaching a $4 trillion valuation. Tesla hit a $1 trillion mark. Google went up 22% to $2.14 trillion. Nvidia went up by over $2 trillion to $3.28 trillion. Startup darling OpenAI’s valuation rose over 10-fold in 3 years to $157 billion. The world’s 500 richest people gained $1.5 trillion in wealth and are now worth over $10 trillion. Seemingly, it was virtually impossible to predict a better year than 2024 offered.
How did those record marks translate into the everyday life for people? To start, 2024 materialized as the year of ‘efficiency’. After massive layoffs in 2023 due to ‘over hiring’ during the pandemic, 2024 was a time for the Big Tech and many others to scale labor costs down, as much as possible. Google laid off another 10% in December, while their managers and VPs fell victim to the efficiency push. Amazon is continuing to get rid of managers at an unreal rate also, as their CEO claims to ‘hate bureaucracy’. Management consulting, which already shed a lot of weight, continued to lower costs through layoffs. Hiring freezes took hold of most companies, even as they continued to post their unapproved positions, leading to a drag in the hiring process and frustration with qualified candidates. Bankruptcies flared up and a number of well-known firms lost so much money, they could no longer go on. Interest rates dropped somewhat, but the pace of those cuts is projected to slow down, exaggerating the credit crunch further. Generative AI made so many jobs easier, and in some situations, even replacing employees, but not at the rate feared yet. The long-feared and generally hated ATS filters didn’t make much of an impact, as the rate of hiring stayed low. Staffing and consulting companies continued to struggle, often moving away from obsolete $200K+ technical positions for the sake of placing $70K accountants. The world of consulting no longer seems cool, and consulting projects have become harder to find. While the spending on digital transformation increased, most of it went to growing GenAI, and the hardware behind it. There is an about 3-months wait for Nvidia chips alone, and data centers are getting more and more expensive. Overworked employees went from being overworked from 2-3 remote jobs, to just being overworked, while being underpaid, with even overtime pay becoming a trend from the past.
Will 2025 be a continuation of the same trends? In some ways, it will be the case. The unprecedented input of wealth into the US economy, spurred by the 2020 pandemic, raised inflation to extraordinary levels, increasing interest rates. While the current inflation rate dropped below 3%, from the peak of 9.1% in 2022, the new administration seems focused on further inflationary policies, such as imposing tariffs on other countries, and giving further tax cuts to corporations, regardless of record corporate profits and share buybacks in recent years. A certain attempt to drastically slow down or entirely stop immigration is not projected to help the economy either, albeit for now, H-1 Visas seem safe.
There are certainly positive economic signs from the new administration. Less regulation, as promised, will likely lead to less blocks on the way to innovation. That may have a tougher time stopping fraud, like Bernie Madoff and Sam Bankman, but the resulting financial losses are most likely going to be far lower, than gains. Madoff’s victims recovered 94% of all loses, and FTX investors will certainly be made whole, albeit the company itself is gone. CrowdStrike’s fiasco likely wouldn’t have been avoided anyway, and Theranos would have gathered those unsuccessful investments in any case. The 2008 Great recession would have been avoided, but it’s doubtful, that the Obama-implemented regulatory changes could ever be taken back too. Innovation, presumably mostly through progression of GenAI advances, will likely replace many jobs, but it may also create plenty of new opportunities.
While firms, like Goldman Sacks, are rather bullish on the new year, it’s based on interest rates dropping and inflation lowering. Jerome Powell is here to stay, and he is predicting only two more .25% interest rate cuts 2025. Inflation has proven to be rather stubborn, even if no further inflationary policies are implemented. Perhaps, there are other ways to limit spending? So far, the Elon Musk and Vivek Ramaswamy-led DOGE plan is filled with phenomenal promises, like cutting as much as $2 trillion dollars in spending, however unobtainable it may seem, the path to savings goes through more ‘efficiency’ and further layoffs, this time from the Federal government. That alone could oversaturate the available pool of professionals even further, while the resulting savings are far from guaranteed. Generative AI is getting more and more capable and powerful, with more sophisticated models from industry leaders, like OpenAI, Microsoft, Meta, Google, and Amazon. That last bit alone could replace plenty of current employees. In 2024, being an IT professional meant endless job searches, often finally resulting in far lower salaries, than before. 2025 is promising to continue the same trend.
The entire economy is based on predicting market behavior. AI is beginning to play a greater role with predictive analytics, but all predictions are based on past behavior. From the US election failed surveys to unrealized promises of ‘doom and gloom’ in the market, most forecasts are beginning to look, like guess work. With major players, like Cathie Wood and her Ark Invest losing over $14 billion, the same unpredictable behavior translated to pure economics. Perhaps, it makes much more sense that Warren Buffet sold so much stock that his cash holdings eclipse $325 billion, more than doubling in one year and up over 400% in the last 10 years.
The main lesson to take from it all going into 2025 is to expect nothing and give everything. There is always a rainbow at the end of every storm. We just haven’t fully figured it out yet. Hence, here is to 2025, the year of discovery.
