EVENT DETAILS
Tuesday, January 14, 2025; Hyatt Regency
Speakers (in order of presentation):
- Diane Swonk; Chief Economist, KPMG
- John W. Rogers, Jr.; Chairman & Co-CEO, Ariel Investments
- Dr. Bob Froehlich; Owner, Kane County Cougars Baseball Club & Former Vice Chairman, Deutsche Asset Management
Moderator:
Terry Savage; Nationally Syndicated Columnist, Terry Savage Productions
EVENT OVERVIEW
Taking the stage in front of an eager, sold-out crowd, Terry Savage kicked off the 45th Annual Economic Outlook Event with a brief synopsis of the wildly unpredictable past 12 months. In 2024, we lived through a polarizing presidential election between two of the least expected candidates at this time last year, watched Bitcoin surge past $100,000, and wound up with a surprisingly strong economy (24%+ gains for the broad stock market!) in a year Savage remarked was defined by both artificial intelligence and natural stupidity.
Now, today’s business leaders are challenged to sort fact from fiction and must react swiftly to new policies and regulatory changes, all while the active Los Angeles wildfires serve as a sobering reminder that nothing is guaranteed. It’s clear that success in 2025 will require both preparation and agility, and to help navigate the year ahead, The Executives’ Club of Chicago was proud to welcome back three beloved expert forecasters.
Diane Swonk:
First to the podium was event veteran Diane Swonk, who shared that we live in a world of contradictions, and while our economy might look good on paper, most Americans don’t feel that way. In an election climate, she noted that some perceptions may be distorted by a partisan lens, but Swonk believes the deeper issue is diminishing confidence due to rising inequality and inflation.
Although a range of complex factors contribute to inflation, consumers largely view it as the result of government mismanagement and corporate greed. Prices have been staggeringly high, and affordability is so low in the housing market that the average age of a first-time home buyer is now a record 38. It’s no wonder consumers are angry, Swonk noted. In this economy, most are unable to achieve the same milestones as generations before them.
Now, Swonk expressed, we face an uncertain future. We are sitting on the verge of significant policy changes, and the Fed’s battle against inflation is not yet over. As we try to right the ship for those hit hardest by inflation, those same individuals now face the highest risk of being hit by tariffs and curbs on immigration. At the same time, supply chains (ironically to escape tariffs and geopolitical risks) are longer and more vulnerable to external shocks than they once were.
Swonk noted the path down on inflation has been much slower and bumpier than the path up. And while she worries about the residual effect of the strain on resources that will come from rebuilding what is lost in the devastating Los Angeles wildfires, Swonk ended on a positive note, sharing that she believes we will see some improvement in inflation in 2025 and hopes that will open the window for two rate cuts this year.
John W. Rogers, Jr.:
Next to the podium was highly respected investment expert John W. Rogers, Jr. A long-time believer in small and mid-cap value stocks, Rogers reaffirmed his position at the event, presenting his case for why, as a long-term investor, he feels it’s finally time for small-cap value to have its day.
First, Rogers shared that large-cap growth stocks continue to be extremely expensive compared to small-cap value stocks, and that gap is only increasing. At the end of the year, large-cap growth stocks were selling at almost 29 times next year’s earnings, while small-cap value stocks were selling at just under 17 times next year’s earnings. He also touched on the Magnificent 7 (Apple, Microsoft, Amazon, Alphabet, Nvidia, Meta, and Tesla), noting that while many investors feel enormous pressure to own those stocks, he’s found that every time there’s a pressure to own stocks just because they’re part of an index, they’re usually nearing their peak.
While Rogers appreciates that consumers are optimistic that the market will continue to rise, he warns us not to forget about the early 1970s. At the time, McDonald’s was selling at 82 times earnings, Disney at 84 times earnings, and Coke at 47 times earnings, but those stocks ultimately declined between 60 and 90 percent and fell to single-digit PE ratios. Although it seems unfathomable, Rogers cautioned, something similar could happen again.
Rogers also reminded attendees that in 2000, when the internet bubble had finally burst, the Russell 2000 growth index was down 19% while the Russell 2000 value was up 47%. Worried that people forget the difference that can occur in those types of periods, Rogers shared that he expects to see the same type of outperformance in the future. If you have the courage to buy the smaller stocks that are often neglected and misunderstood, Rogers firmly believes you’ll get great returns over the next several years.
Dr. Bob Froehlich:
The event’s final forecast came from the ever-passionate Dr. Bob Froehlich, who told attendees, “To think big in 2025, you have to think small.”
To set the stage for what he meant by that, Dr. Bob reiterated that in the year ahead, all eyes will be on interest rates and inflation, both of which he predicts will be “lower and slower” in 2025. With two-thirds of our economy driven by consumer spending, and consumer spending fueled by lower and slower interest rates and inflation, Dr. Bob is confident we will see above-average growth in our economy this year.
With that established, Dr. Bob went on to name the four important catalysts he believes will drive the markets in 2025:
- Robust (double-digit) earnings
- A round of deregulations across multiple industries and sectors
- Massive corporate tax cuts, and
- The onshoring or reshoring of production.
Circling back to the notion that “To think big in 2025, you have to think small,” Dr. Bob shared that it’s the smaller companies that are positioned to benefit the most from the trends he foresees in the year ahead. For example, while lower inflation, in theory, helps everyone, he explained that small companies reap the greatest benefit because they lack the leverage that larger companies use to negotiate with vendors and suppliers to offset higher inflation.
With that in mind, Dr. Bob doubled down on Rogers’ assertion, reiterating that small-cap value stocks are going to be the best investment in 2025.
KEY 2025 PANEL PREDICTIONS
- Diane Swonk predicts:
- No recession in 2025
- The Dow at 41,000
- Interest rates (10-year treasury) at 4.5%
- If Swonk had $100,000 to invest this year, she would put it into the larger home builders poised to benefit from the reconstruction efforts tied to extreme weather events. She would also invest in the renewable and nuclear energy sectors.
- John W. Rogers, Jr. predicts:
- The possibility of a short and small recession in 2025 that will help keep interest rates and inflation under control
- The Dow down 10-12%
- The S&P 500 down close to 20%
- Interest rates (10-year treasury) at 4%
- If Rogers had $100,000 to invest this year, he would put it into Madison Square Garden Entertainment (MSGE), Grosvenor (GCMG), Leslie’s Pools (LESL), and Sphere Entertainment Co. (SPHR).
- Dr. Bob Froehlich predicts:
- No recession in 2025
- The Dow at 50,000
- Interest rates (10-year treasury) at 3.99%
- Inflation around 2.75%
- If Dr. Bob had $100,000 to invest this year, he would give half to John W. Rogers, Jr., at Ariel Investments and put the remaining $50k into two small-cap ETFs—one from First Trust and one from Nuveen.
CLOSING THOUGHTS
We hope our experts’ forecasts give you a competitive edge as you build out your strategies for the coming year, and we wish you much success in 2025 and beyond!
