A STEWARD'S VIEW - Special Edition: 2025 Economic Update
- Aaron Kolkman
- Apr 6
- 4 min read
April 6, 2025
ECONOMIC GROWTH
JP Morgan adjusted its economic outlook to include a US Recession in 2025, saying "we now expect real GDP to contract under the weight of the tariffs, and for the full year (4Q/4Q) we now look for real GDP growth of -0.3% down from 1.3% previously,” the bank’s chief US economist, Michael Feroli, said Friday in a note to clients, referring to gross domestic product. “The forecasted contraction in economic activity is expected to depress hiring, and over time, to lift the unemployment rate to 5.3%,” Feroli said.
Fund manager Bill Gross gathered attention with his short warning investors to “not to try to catch a falling knife.” Other economists warned of slowing growth and increased inflation risk. Nomura Securities International Inc. said it expects gross domestic product to expand 0.6% in 2025 after accounting for the new levies on imports, and a key measure of underlying inflation to rise to 4.7%. Barclays Plc economists took a more pessimistic view toward GDP — projecting a 0.1% contraction — and a slightly more optimistic view of inflation, penciling in a 3.7% increase. They also look for the unemployment rate to climb by year-end. This “stagflation” is a feared economic combination that results in pressure on US consumers and caution for investors.
JOBS
According to the Bureau of Labor Statistics data released Friday, the US economy added a stronger-than-expected 228,000 jobs in March, increasing from February’s gains. The robust gains notched in March were likely a rebound after wildfires and bad weather depressed job growth in January and February (which were revised down by a combined 48,000 jobs). The unemployment rate in March ticked slightly higher to 4.2% from 4.1%, driven up partly by new entrants to the labor market.
Economists were expecting job growth to slow to 130,000 in March and for the unemployment rate to tick up to 4.2%, according to FactSet.
THE DOLLAR
The U.S. dollar has slumped about 6% against other major currencies, despite Treasury Secretary Bessent’s strong dollar policy posturing this year. He insists “We have a strong dollar policy and we are putting in all of the necessary ingredients to make sure the dollar is strong over the long run,” adding that the “dollar is going to do great” referring to the Trump Administration’s approach to reordering global trade, and the U.S.’ standing with its trading partners.
MARKET ACTIVITY
The Russell 2000 took another pounding on Friday, tumbling 4.4% to end at 1,827.03. Meanwhile, the S&P 500 fell nearly 6%, to finish at 5,074.08. The large-cap index will have to close below 4,915.32 for a bear market to be confirmed. The Dow Jones Industrial Average was off 5.5%, ending at 38,314.86. The blue-chip index on Friday officially entered correction territory — defined as a 10% decline from its recent peak. Further, mostly “Magnificent 7” Stocks have led major indexes down, while the equal-weighted S&P 500 index dropped significantly less.
The S&P 500 P/E Ratio and Forward P/E Ratio aligned for the first time in years, with both metrics hovering near 20, indicating the S&P is more accurately valued.
In the bond market, the U.S. Treasury yield curve inverted over the past week, with the 10-year Treasury closing April 4, 2025 at 4.04%, while the 2-year Treasury closed at 4.25%. These yields represent a slight inversion, and are nearly an exact opposite of the yield pattern two weeks ago.
NEXT STEPS
Stocks are a leading indicator of economic activity. Corrections and bear markets are normally very short-lived, with investors collecting handsomely in the months following the entry of small cap (Russell 2000) and Nasdaq 100 (large company tech) stock indexes. Large company indexes, while less volatile, are no different. Further, U.S. stock indexes are widely considered leaders in the global marketplace, meaning a rapid rebound of U.S. and Global stock indexes is fair to expect this year.
A strong dollar means the real value of financial assets denominated in dollars gets maintained. On the flipside, devaluation of dollar-denominated assets occurs with a weakening dollar (versus other currencies). The dollar’s 2025 YTD drop of 6% undercuts the value of portfolios by as much, without re-pricing assets. This “phantom devaluation” is not a primary concern unless the dollar continues lower in in the months ahead. Finally, the U.S. dollar maintains its standing as the world’s reserve currency, and according to Treasury Secretary Bessent, its 2025 re-pricing is a welcome dynamic in order to force other countries out of currency manipulations.
Taken on the whole, these economic shifts and resulting market adjustments should mean very short-lived pain for investors. Markets have already priced in a new set of investor expectations, so re-allocating long-term capital should be avoided where possible. Preparing to deploy new cash and re-balance existing allocations into the hardest-hit areas of the global market are the prudent moves to capture opportunities in the current environment. Both the possibility of stagflation (slow growth and persistent inflation), and the possibility of a mild recession are real, but neither should deter long-term investors from their course.
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A STEWARDS’ VIEW consolidates current information into actionable content designed to help investors navigate risks in the current economic and market environment – from a conservative view. The larger purpose of this work is to optimize financial plans and bring the reader closer reaching long-term life goals.
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