(Bonus) From On Investing: 2025 Market Outlook
Schwab Market Update Audio
Deep Dive
What are the key factors contributing to the uncertainty in the 2025 market outlook?
The uncertainty stems from a mix of pro-growth policies like tax cuts and deregulation, combined with potentially inflationary and growth-restrictive policies such as tariffs and immigration restrictions. Additionally, the unique cross-currents of these policies and their possible impacts on inflation and debt-to-GDP ratios add to the unpredictability.
How might tariffs impact the U.S. economy in 2025?
Tariffs could lead to higher inflation, particularly for goods subject to tariffs, as seen in 2018. They may also put downward pressure on economic growth due to increased costs for U.S. companies importing goods, potentially leading to stagflationary conditions.
What are the potential effects of proposed immigration policies on the U.S. labor market?
Restrictions on immigration or mass deportations could significantly reduce labor supply, particularly in sectors like construction where foreign-born workers dominate. This could lead to slower GDP growth and exacerbate labor shortages, especially given the already low native-born labor force participation.
What is the outlook for international markets in 2025?
International markets are expected to see better growth in 2025, particularly in developed economies like Europe, Japan, Canada, and the U.K., after rolling recessions in recent years. Earnings growth in these regions is also expected to improve, supported by easier comparisons and potential rate cuts.
How might a trade war impact global growth in 2025?
If U.S. import tariffs rise significantly and are matched by other countries, global growth could be reduced by 0.1%, according to the IMF. However, the impact may be limited if tariffs are used more as a tool of statecraft rather than strict economic policy.
What are the risks to the outlook for international stocks in 2025?
Risks include continued U.S. tech-driven market leadership, potential shortfalls in expected central bank rate cuts, and geopolitical tensions. A rotation toward financials, which are more prevalent in non-U.S. markets, could help international stocks outperform.
How does the labor market's current state differ from 2017, and what are the implications for 2025?
The labor market in 2025 faces challenges like an uptrend in the unemployment rate and a reliance on foreign-born workers for labor force growth. Unlike 2017, which had strong tailwinds, the current environment has less room for aggressive policies like tariffs or immigration restrictions without negatively impacting growth.
- Unique amount of uncertainty in the market given the incoming administration's policy proposals.
- Combination of pro-growth and potentially inflationary policies.
- Tariffs are paid by the U.S. company importing the goods, not the other country.
- Restrictions on immigration could negatively impact GDP growth.
- Housing affordability may struggle due to higher mortgage rates and low supply.
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