This transcript has been transcribed for convenience and may undergo revisions.
Hello and welcome to On Watch by MarketWatch. I’m Jeremy Owens, and as this year wraps up, we’re taking a moment to revisit 2024 and reflect on some significant predictions from analysts, economists, and bloggers that didn’t pan out. We’ll dissect three primary areas: the economy, the markets, and the housing sector, to understand why expectations fell short and what we can learn from these miscalculations. It’s crucial especially now, as we’re about to be inundated with forecasts for 2025, reminding us to approach predictions with skepticism. Today, joining me to review the most questionable macro calls of 2024 is Joy Wiltermuth from our markets team.
Joy opened the year amidst a cloud of recession worries. We observed typical recession indicators flashing warnings: yield curves suddenly straightened, and labor market alarms added to the anxiety. It was a tense period around July and August, with recession fears re-emerging. Yet, contrary to predictions, a recession did not materialize, and stock markets surged ahead.
Reflecting on the beginning of ’24, the worst calls were those forecasting economic distress. Many analysts were still convinced a recession was imminent, primarily because they had anticipated it as early as 2022, simply deferring their predictions year after year. The delayed response of monetary policies, especially high interest rates, was expected to trigger some economic downturn. However, we continue in a ‘no landing’ scenario as we approach the next year. For those hunting for bargains amid market turbulence, it’s been challenging to find any significant discounts.
Trading on Wall Street often involves speculation about Fed actions. At the start of this year, the expectation was that the Fed would make three rate cuts. Back then, predictions varied broadly, with some estimating up to seven cuts. The bond market opposed the Fed’s dot plot, foreseeing more aggressive rate reductions, which led to substantial adjustments later in the year. Ultimately, rates ended up near their initial levels, marking a year brimming with rate-related surprises.
While I don’t want to be too critical of economists predicting recessions—because, truthfully, there were many strong recession signals—the anticipated downturn simply didn’t occur. The prevailing belief for years has been that the economy couldn’t sustain higher interest rates, yet history shows it can indeed thrive under such conditions, as long demonstrated before the era of ultra-low rates. Though concerns about future recessionary impacts remain, the reality is those predictions didn’t hold up over the past couple of years.
Interestingly, as interest rates increased, bonds became attractive again after a decade-long disinterest, drawing investors back. Subsequently, when rates dropped, investors branched out again into riskier assets, like equities. You can observe such money flows or attempt to predict their next direction.
Risk appetite has indeed been strong—take the cryptocurrency market, for example, with Bitcoin soaring past 100,000, capturing widespread attention. But there’s always the concern of buying at market peaks, especially late in the year as new dynamics unfold come January. Being cautious about asset allocation is wise, though some may argue we could do with less uncertainty, given the prolonged bullish trends in markets.
Taking a turn toward housing, the market has proved frustrating for prospective homebuyers. Last year, Redfin predicted a drop in housing prices and mortgage rates in 2024, neither of which happened. It was a forecast that really stood out.
As economists, making predictions comes with the territory, and it’s tough when they miss the mark. The expectation around lower rates leading to a cheaper housing market didn’t materialize. Blame or commend the Fed chair, Powell, as you will, but without significantly lower rates, loans stayed costly, exacerbating challenges for first-time buyers. At the same time, existing homeowners enjoyed significant value appreciation.
A story Hannah Erin Lang is working on at MarketWatch highlights how well-off you are in today’s economy boils down to two questions: Do you own stocks, and do you own a home? Answering yes generally signals financial stability. The assumption that a rate drop would automatically revive the housing market didn’t pan out, and it’s likely not going to happen immediately.
The housing market feels like it’s in lockdown—much like the labor market—with little hiring, firing, moving, buying, or selling happening. Although frustrating for some, housing remains a relatively stable asset compared to the financial upheavals seen in 2006, offering security for those fortunate enough to own homes.
Market forecasters, including stock analysts, seem to be reining in their predictions. Earlier this year, analysts from JPMorgan and Morgan Stanley suggested a market correction was forthcoming. Now, Goldman Sachs suggests we might face a lost decade, which is more of a tempered and long-term perspective rather than predicting an immediate downturn.
A big part of navigating the future involves assessing how much optimism is baked into current market valuations, and how various factors like deregulation and taxes will impact the economy. This year, uncertainty prevails, though sometimes Wall Street revels in ambiguity if it anticipates positive outcomes.
If you’re fascinated by market predictions, our daily “Need to Know” newsletter often highlights the call of the day, which provided a retrospective look at 2024’s major forecasts.
As we prepare for another segment, I’ll acknowledge a personal misstep regarding artificial intelligence in the stock market. Last year, Maribel Lopez and I speculated on AI’s direction in 2024, and I incorrectly predicted that AI-related valuations were already maxed out. The reality surprised me, with S&P 500 gaining over 20%—proving valuations to be less stretched than I anticipated.
Maribel Lopez reflected on making a similar call, underestimating market enthusiasm for tech growth. But as 2025 approaches, there’s a shift in expectations. Companies appear cautious, facing market demands for continuous growth versus AI revenue realities.
The conversation now shifts toward AI agents—beyond mere chatbots, envisioning digital workers performing complex tasks for employees. A major evolution could involve agents streamlining workflows, integrating processes, and presenting key data autonomously, marking a transition from simple interaction to tangible task execution.
For those like me unimpressed by current chatbots, the advancement into next-gen AI that performs concrete actions is eagerly anticipated. However, current technology lacks capability. For AI to evolve, it must manage complex, goal-oriented sequences—essentially turning rudimentary actions into seamless operations, much like piecing a cake together from individual ingredients.
Investments in AI technologies are unlikely to wane in 2025. Big players like Microsoft, Amazon, and Google continue hefty investments in AI infrastructure, pushing software development to enhance corporate productivity.
Maribel highlights the three Cs—chips, clouds, and cash—as ongoing investment themes, but looking toward 2025, the focus is on agents, accuracy, and perhaps autonomy. Software must adapt to varying accuracy demands and costs, while automation seeks to enhance prediction and efficiency across industries, including security.
Year after year, watching tech heavyweights like Salesforce and Microsoft seek dominance in AI software is fascinating. Companies littered with data, like Salesforce and security firms, stand to gain substantially from AI analytics, positioning them as prime contenders for leveraging AI technologies.
We’ll check back on these insights a year from now. Thank you, Maribel, for your insightful discussion today.
As we conclude this episode, stay updated with marketwatch.com for the latest in financial news. We’re eager to hear your questions about the economy. Reach us at [email protected]. Subscribe to On Watch wherever you listen to podcasts, and please leave us a rating or review to help others discover the show. I’m Jeremy Owens, and our show is produced by Alexis Moore, with mixing by Isaac Gaines. Melissa Haggerty is the executive producer. We’ll return next week with new insights, so until then, we’ll be watching closely.
