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What’s your excuse now?

Bob Elliott told us that if he could use only one chart to explain his market outlook for 2025, it would be this one:

The blue bar is the expected US GDP growth rate among professional economists. The yellow bar is what actually happened during 2023 and 2024. Economists went into 2023 at roughly 100% consensus that recession was the inevitable consequence of the pandemic-era hangover combined with significantly higher interest rates. They were wrong, GDP grew over 3% thanks to the velocity of all that excess money in the financial system. The consumer held up while business spending on AI and data center infrastructure exploded.

The economists learned something from being that wrong about 2023 and so for 2024, they got a little more constructive on their outlook for economic growth. And then the reality shocked them once again - GDP grew by almost 3x faster than the 1% they were expecting. Nothing changed in ‘24. Defaults remained low, interest rates remained high, the consumer kept spending on travel, leisure and entertainment, and the AI boom actually accelerated. Oops. Wrong again. Way too bearish. The average equity strategist’s price target for the S&P 500 in January of last year ended up wildly conservative vs the 24% we actually got.

Now, I turn your attention to the blue bar estimate for 2025. Notice something? Nobody is underestimating the economy’s potential this time around. The consensus is now max bullish. The strategists are setting their S&P 500 targets on or around 7,000, meaningfully above today’s 6,100. If not for fears about tariffs, I could imagine the GDP estimate being closer to 3% than 2% given all the pro-growth rhetoric coming out of the Trump administration and the concomitant optimistic “vibe shift” all over Wall Street. Even the Democrats I know are down to f*** this year. IPOs, M&A, deregulation, crypto going mainstream, Big Tech CEOs getting in line with the White House, it’s all happening. Everyone is horny.

Valuations tell the tale. The current market’s price-earnings ratio is top decile for last few decades. Credit-spreads are near record tights. There is no fear priced into anything at the present moment. If there is skepticism about what Trump can actually get done, it’s certainly not showing up in pricing, positioning, portfolio flows or the way anyone is talking in public. Ray Dalio did 30 minutes on CNBC from Davos this week without referencing 1937 even once. Maybe it’s finally 1938.

To which Bob Elliott says, “Okay, but curb your enthusiasm.” I guess someone has to say it. He shared the above chart to make the point that the hurdle for upside economic surprises - which have fueled the rally over the past two years - is now materially higher. Yes, we’re in for growth. No, we will not be pleasantly surprised by it.

And if you know anything about the stock market, you know it’s already attempting to get its arms around the second half of 2025. By May or June we’ll be sorting out the outlook for ‘26. I don’t know why we are this way, I just know we can’t change. It’s endemic to the mentality of the investor class - tell me something new and what have you done for me lately?

Something to keep in mind and perhaps to check ourselves with. If you’re bullish about the coming year, you are now consensus. This wasn’t the case in January ‘24 or January ‘23.

Bob Elliott on TCAF

Bob is the co-founder, CEO, and CIO of Unlimited Funds, an asset manager providing easier access to hedge fund strategies. Bob was previously the head of Ray Dalio’s research team at Bridgewater. This was his second appearance on The Compound and Friends and it was great to have him back.

We went deep on Bob’s cautious outlook, his ideas around economic growth, productivity, the benefit of owning gold over the long-term, the difficulty with valuing companies like Netflix, the trouble with hedge fund fees and private equity illiquidity and a whole lot more.

You’re going to love listening to the show, which you can do below or on the podcast app of your choosing. YouTube version will go up later on our channel - subscribe to get the alert.

Attention Florida Investors

Investors - we have a few slots available to come see us in Naples, Florida this February when we come down. We’re sitting with our existing clients and making space to talk with potential clients to hear their stories and tell them about how we can help. If you’re in the area and want to get on the calendar, now is the time. More details here:

Ritholtz Wealth Management in Naples, Florida 

Attention Advisors

Future Proof Citywide Miami has just crossed 1,000 registrations. We’ll be announcing some major speakers and sessions over the next few weeks and a price hike for tickets is coming by mid-February. Get your spot, grab your hotel room and get yourself ready - we’re about to blow the top off of this thing.

Back in the aughts decade, All American Rejects (AAR) put out one of the best rock videos of the era. It’s embedded below in case you haven’t seen it in a while. I’m excited to let you know we’ve got AAR performing live at Citywide on Tuesday night, March 18th. The Fray is opening the show too, so expect a gigantic Cable Car sing along. Girls love that band.

We’re going to have a blast in Miami and learn a ton about what’s happening at the cutting edge of wealth management right now. If you work in wealth, you have to be there.

Get yourself set up here:

Future Proof Citywide Miami - March 16th-19th 

Okay, that’s all from me, have an awesome weekend! Talk soon - JB