I expect a slowdown next year. Here’s why

Investment Analysis Clubs Macro Economic Trends and Risks
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Americans Are Stockpiling to Get Ahead of Tariffs

Some consumers are snapping up computer parts, vacuum cleaners, coffee and olive oil before levies take effect
Tariff-conscious consumers are stockpiling goods and rushing to upgrade old cars and appliances to get ahead of potential price increases.
A quarter of Americans surveyed said it was a good time for major purchases as they expect prices to go up next year, up from 10% a month prior and a record high, according to the University of Michigan’s monthly survey of consumers. And a third of the 2,000 people surveyed recently by CreditCards.com said they were buying more now because they feared tariffs.
Some economists warn that by spending as though inflation is coming, people could already be pushing it higher. The consumer-price index of goods and services grew 2.7% year over year in November, according to the Labor Department, slightly higher than in the prior month. The boost was driven in part by a surge in durable-goods purchases some shoppers said are related to President-elect Donald Trump’s threats of tariffs on imports from countries including Canada, Mexico and China.

https://www.wsj.com/economy/tariff-price-fear-stockpile-bd418b8a?st=oF5i7v&reflink=article_copyURL_share

https://www.wsj.com/economy/tariff-price-fear-stockpile-bd418b8a

I know very few people who think the market is fairly valued at the moment. By any historical measure it’s at, or off the top of the chart, and as we have seen in the past there’s a bumpy ride on the way down - whenever that happens.

So this article is mostly about consumers, but you can be sure there are entire supply chains busily stocking warehouses at the moment in anticipation of making a killing when tariffs surge 25% (assuming they do, which is not a sure thing) and they can move prices up by 20% and still underprice the slower moving competition.

Now I have no insight as to which companies are doing so, or even which segments might be most likely to have “overstocked”, if that is the right word, but I am sure it is happening. Could be auto parts. Solar. Toys. Electronics. No idea, actually, just that it is likely happening in lots of places at lots of companies.

Some of it, of course, is probably being done not out of greed, to capture excess profits, but for fear of not being able to acquire the raw materials (or semi-finished parts) at all. Doesn’t matter. Long about February or March, as tariffs are enacted, or not enacted (as I see as a real possibility, the threat being used from the bully’s bully pulpit) there is going to be an overstock and a pull back, and that means a quarter, or two, or five of negative growth - and the dreaded “R” word with it’s consequent effect on the stock market.

I will caution that the last time I thought this (though for different reasons) I was completely wrong, and the bubbleheads told me how stupid I was not to anticipate the onrush of business activity thanks to a “business friendly President”. Maybe that’s true this time, too, but the macro-effect of the rabbit in the snake of smooth supply logistics has to be compensated somewhere, and I’m calling it: 2nd, maybe 3rd quarter 2025.

Opinions?

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I have my toilet paper so I am set.

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fwiw, I picked up a couple new shirts, and pairs of jeans, on a BOGO sale at Penny’s a couple weeks ago. All are imported. Thought about a new sled, as the VW is nearly 11 years old, but there is nothing on the market that fits my use as well as the old VeeDub.

My tariff plays in the market are Whirlpool and Ford.

Steve

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It may be both: tariffs enacted, but so many CEOs may come to DC with supplication (and dollars) to bribe, I mean carve out, an exception to the tariffs that the effort may be ineffective. That doesn’t mean those same CEOs wouldn’t raise prices on their inventories based on the perception of tariffs, of course.

This might have been the idea behind tariffs to begin with: generate private income from CEOs/companies to stay off the tariff list.

Pete

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My record is a little better than yours. I’ve successfully called 12 of the last 2 market crashes.

In addition to everything you mentioned, I think we are in for a period of nonsensical deregulation. And I think I’m on firm ground when I say that deregulating banks and businesses has NEVER resulted in any negative results.

Our economy is big and takes time to alter its trajectory. I’m guessing last half of 25, first half of 26.

What I wrestle with is what alternatives are there to riding out the storm (other than keeping a little extra dry powder to jump in with if I prove to be right)?

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Thing is, in the case of Mexico, TFG has stuck his feet in concrete, tying the tariffs to immigration. Any failure to seal the border would be easily observable by locals, so all the happy talk by Fox Noise would be too easy to counter.

Besides, CEOs with USian production, will like the tariffs, as they provide cover to raise prices of US produced goods, and line their pockets.

Steve

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If you can’t beat them, join them? The loot I have made already on Whirlpool, would easily cover the price escalation on a house full of new, tariff inflated, appliances.

Steve

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For another opinion: the lead story in today’s Barron’s:

Stocks Could Gain Another 20% in 2025. Embrace the Bubble.


Wall Street’s market forecasts are too tepid. The S&P 500 could rally next year on a combination of AI growth and deregulation. But investors should prepare for a wilder ride.

https://www.barrons.com/articles/stock-market-outlook-2025-d03ad66a?mod=hp_MAGAZINE_1

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Well, I started a long process of unwinding a >50% stake in QQQ to rotate into value throughout 2024 and that proved to hurt my returns, so I don’t know where to go either. Tech IS overvalued. It does not seem to be bursting yet. I think the only way big tech does not burst is if AI has its spreadsheet moment, and soon. And no, that is not LLMs. I’m skeptical.

Where else to put the money to ride out the storm? Treasuries are the only thing I can honestly think of. Value stocks, and Treasuries. But I’m not confident in that call either.

Auto Zone already said bonuses are cancelled so that they can stock up on 2025 inventory before tariffs hit.

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How can anyone project where any of this is going to go? Trying to guess, in my thoughts, is the incorrect way to do it. If you feel you must do something, go to cash. Then you can see which way the wind will blow. Otherwise, stay invested and watch daily. But trying to guess is impossible. There are to many variables, and to many participants.

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Cynics unite! However the tariffs shake out, all prices will most likely go up.

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We haven’t had a real* recession since the late 2000s. That’s quite a long time. There are apparently some people out there, including some noted economists, that seem to believe that “recessions have been cured” by rapid fed action combined with rapid government spending (and borrowing). But I don’t know if we should believe that, I certainly don’t. So we are “due” for a recession and it is sure to arrive someday. I thought it would have arrived in late 2023 through 2024, but I was wrong. I don’t know if it’ll be in 2025 or 2026, but I would think it will arrive before the end of the decade. As time passes without one, it becomes easier and easier to predict a recession.

* “Real” as in not pandemic induced, and instead part of the normal business cycle.

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An important factor is energy (the master resource) and price shocks there can send an economy into recession. Since the fracking revolution, the US has benefited from lots of fossil fuels (80% of energy consumption, IIRC) which adds stability.

Oil Price Shocks and the Macroeconomy: What Has Been Learned Since 1996
Jones et al.

Energy Price Increases and the 2008 Financial Crash: a Practice run for What’s to Come?
Hall and Groat
https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=2f5f0a7a4c0bc8a0793612f47836f709b6cc0ee1#page=23

DB2

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I think we are in a unique time in history because we ignore deficits now. We think we can deficit spend our way out of the next recession even if we have heretofore unthinkable deficits going into the recession. Maybe Quadrillions will be the new Trillions.

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Had a discussion this week with Youngest, who is closer to 30 than 20. He is wanting to shove into the stock market some cash we gave him for a purpose he will need the cash for potentially in less than 2 years, certainly less than 5. He just could not conceive of the market going down over that time frame, believing if it did it would come with lots of warning signals and he could reposition. We had to pull out history to help him understand, and eventually pull out the parental because I said so card, encouraging him to reread the email that described the intent of this gift and the parameters with which to use it. Many out there who have that same belief that down markets are ancient history, caused by their foolish elders.

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Exiting before a crash can be done but at a cost from the false signals. For example, before the precipitous drop on Black Monday in October 1987 the stock market was already down over 15% from its August high.

So is a, say, 12% drop acceptable? Probably not for the short time frame. At the same time, it doesn’t have to be all or nothing. A portion of the funds could be in the stock market, the rest collecting interest.

DB2

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Yes, it’s been since 2008 - that Mother of Recessions - which makes it a very long time indeed.

Since World War II, which I will use as a (very) rough gauge of the modern economy, the length ( in years ) between recessions has been:

3, 4, 3, 2, 9, 3, 5, 1
(And now we’re thru Reagan)
8, 10, 6, 11
(And that 11 is Covid, following the long GR recovery)

And here we are. Yes, there has been quite a bit of improvement in the business cycle, and yes that’s probably due to a better understand by the Fed of how to ameliorate its worst effects, but …

Recessions are still necessary, actually, because over time the economy does get out of balance. Sometimes it’s obvious, like the banking fiasco of 2008 with strippers buying 6-packs of houses. Usually it’s more subtle, with inefficient businesses, suppliers, logistics hanging on by a thread - and being inefficient and wasting resources. It’s the recession that tells them in brutal terms, “Time to go home”

The longer between, the more those kinds of inefficiencies creep in between the cracks, and the more they need to be rooted out before the economy is ready to go for the next leg.

Think China, for instance, which has refused to allow its economy to reset for decades, now with entire cities of empty buildings, shopping malls without tenants, and people’s life savings invested in apartment complexes which will never be built or occupied.

So it doesn’t matter that the most recent is “Covid”. It still counts. It did the “inefficiency squeeze” that recessions do, and we start anew.

Recessions are - perversely - good. It sucks if you’re on the receiving end, of course, but overall they’re a necessary component of a healthy economy.

At least until Hari Sheldon appears in the flesh, which I expect is a long time yet.

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I have put my ideas out there for close to two months. We get deflation from the tariffs on China. The market goes to negative standard deviations against the long term value line for equities. If he does austerity some time in the coming year he will blow up the bond market.

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You’re lucky he wants to put it into the stock market … and not into crypto! You raised him well.

As an alternative, you can have him follow your advice (more or less) with 80% of the money, and let him follow his gut with the other 20%. Worst case, he loses all 20% and still has the 80% at the end. Best case, he’s an investing genius (aka usually got lucky) and doubles the 20% in 2 years and he ends up with 120% of it. If the latter happens, he can pull the “I told you so” card for a number of years until his investing genius (aka luck) fades.

  1. It can’t be done reliably. By anyone.
  2. It requires two correct decisions - when to get out and when to get back in. Even people who get lucky with the first decision rarely ALSO get lucky with the second.
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Exiting? Sure it can be done; all you have to do is sell when your positions are down X%. You choose the X - 5%, 10%, 12%, whatever. The hard part, as you alluded to, is getting back in. When the market has subsequently gone up Y%? When prices are back where you sold?

It is easy to set up a system like that, but it’s not a winning strategy. However, it will keep you out of a crash.

Here’s a better way to avoid a crash. Put 95% of your account into money markets/CDs. Use 5% in an option strategy that you are comfortable with (but not covered calls) where your maximum loss is all the 5% – which, of course, will be replenished by the interest from the 95% of the account. The value of your account essentially remains level, and you have the potential to make money with option side.

DB2