Macro & Market Musings are weekly insights on Growth, Inflation, Policy and Looking Ahead from Annex Wealth Management’s Chief Economist, Brian Jacobsen. Brian, a frequent contributor on CNBC and Fox Business News, hosts regular updates on the economy and markets. Check our events page for Brian’s next live event.
Growth: A Year Of Convergence Or Divergence?
US earnings growth is likely end around 9% higher in 2024 than they were in 2023. Developed market non-US earnings are likely to be 7% higher. However, analysts seem to believe US earnings will grow around 13% in 2025 while non-US earnings will fall 3%. That is a large divergence. The difference in growth expectations could help explain when US markets have outperformed non-US markets. Expectations can be wrong and they can change. It wouldn’t be surprising to see those earnings expectations converge a bit over the next year.
Inflation: Rebound Or Retreat?
The prices of things people purchase most often, food and energy, are up between 23% and 28% since the end of 2019. The consumer price index excluding food and energy is up 21% over that same time period. People can feel that in their pocketbooks. While price rises have slowed, meaning that inflation has retreated, the price level is still uncomfortably high. The big question for 2025 will be whether inflation continues to slow or if it reaccelerates again. Maybe it will do both, moving slightly higher initially and then begin to fade.
Policy: Shock And Awe?
Inauguration Day is coming January 20. President-elect Trump has promised to take a lot of actions on his first day in office. It probably doesn’t pay to try to guess or speculate as to what will happen. He has been transparent about his agenda, but the details will matter. The market has already been moving in anticipation of what policy changes may be coming, so it’s probably best just to wait to see how, and whether, the facts and circumstances change before making any big moves.
Looking ahead: Performance Chasing Can Lead To Stumbling
The performance difference between U.S and non-U.S. stocks, between stocks and bonds, between large cap and small cap, and between growth and value, have all been unusual this past year. Strong earnings growth and robust returns on equity can help explain quite a bit of the performance differences. It is tempting to chase last year’s winners. Sometimes that works, but often times leadership can change. Chasing performance can lead to stumbling and scraped up portfolios.
