At the end of 2024, my economic forecast for 2025 was similar to what it had been for the previous year. The year would start off a little slower than anyone would like, and would accelerate as the year progressed.
Talk about nailing a prediction.
For the first quarter of 2025, the Bureau of Economic Analysis (BEA) estimates the U.S. economy grew at an annualized rate of (0.3%), which isn’t actually growth. However, during the second and third Quarters, Gross Domestic Product (GDP) surged, at the time of this writing, 3.8% and 4.3% respectively.(1)
Wild swings in the trade deficit throughout the year greatly skewed the official GDP data. If you were to strip out all of the noise from international trade, you could conclude that the economy grew at a reasonable, but not-quite-feverish pace.
But why was it so difficult to predict trading patterns in 2025?
On April 2, 2025, President Trump announced a so-called ‘Liberation Day’ of economic independence by placing some form of tariff on nearly all countries in the world, some of these quite substantial.(2) Fearing this, and the worst, the data suggests American businesses frontloaded their international purchases for the year.
As a result, our trade deficit mushroomed during the first quarter, and shrank for much of the remainder of the year.
Voilà. That is how 2025 started off slower than anyone would like, and then growth accelerated as the year progressed.
In the meantime, artificial intelligence (AI) became the topic of household conversation, at least at my house. The U.S. bombed Iran’s nuclear facilities. The Federal Reserve resumed cutting the target overnight lending rate. Pope Francis died. Wildfires consumed much of Los Angeles.
Further, the Dow Jones Industrials Average (Dow) closed above 45,000 for the first time.(3) The Department of Government Efficiency (DOGE) made waves and gave headaches. Riots erupted over ICE arrests and deportations. Conservative Charlie Kirk was killed in Utah. The Federal Government shutdown for 42 days, and the U.S. minted its last penny.
And I saw Coldplay in concert. Again.
In spite of all of the turmoil and confusing economic data, investors didn’t appear too concerned, as global stock markets crept higher. In the United States, the S&P 500 posted a total return of 17.86%, the Dow climbed 14.92% and the NASDAQ increased an impressive 21.17%.
All told, by the time the dust settled, the smoke cleared and the cows came home, it was pretty clear, at least in many of the investment markets.
While it would be hard to predict another year of similar returns, it might be even harder to predict another crazy year of headlines similar to those we had in 2025. My experience, however, has been that people are okay with a little craziness, and even a little uncertainty, when their balances are going in the right direction.
In a lot of ways, that sums up 2025 well.
Thank you for your continued support.
Chief Economist & Chief Investment Officer
SOURCES
- CBS News – U.S. GDP Grew at a Blistering 4.3% Pace in the Third Quarter (Dec. 23, 2025)
- Whitehouse.Gov – “My Fellow Americans, This is Liberation Day. April 2, 2025.” (April 3, 2025).
- Nasdaq – “Dow Closes Above 45,000 for First Time, Nasdaq and S&P Also Set Record Highs” (Dec. 4, 2024)
The views expressed herein reflect the opinions of the author as of the date of publication and are subject to change without notice. This material is for informational purposes only and should not be construed as investment advice or a recommendation regarding any security, strategy, or market sector. Past performance is not indicative of future results. All market and economic data are obtained from sources believed to be reliable, but accuracy cannot be guaranteed.
