In a world where economic forecasting is often likened to astrology, a panel of seasoned economists recently shared their perspectives on the current and future state of the economy. From the impact of presidential terms to the looming changes in tax policies, this article delves into the insights and advice offered by these financial experts, providing a roadmap for navigating the ever-changing economic terrain.

Charting a Course Through Uncertain Times

The Influence of the Presidency

While the president's actions can significantly impact various aspects of the economy, the panelists emphasized that the economy is something the leader can only influence, not control. David Kelly of J.P. Morgan reminded the audience that "presidential terms are short, investment time horizons are long." This perspective underscores the importance of maintaining a long-term outlook and not getting caught up in the short-term political noise.

Upcoming Tax Changes

The experts highlighted that the most significant changes on the horizon will develop in 2026 regarding income tax rates and estate tax exemptions. These potential modifications will have far-reaching implications, and the panelists advised attendees to proactively engage with their estate planning attorneys and financial planners to stay ahead of these changes.

The Evolving Consumer and Labor Landscape

The panel discussed the current economic landscape, where "consumers that can't say no, and employers that can't say yes" have contributed to the current state. While wages have recently been increasing faster than inflation, this trend is not expected to continue. The Bureau of Labor Statistics reported that a declining workweek resulted in year-over-year hourly wage growth from September 2023 to September 2024 of less than 1%. Additionally, the panelists noted that increasing late payments on auto loans and credit cards might necessitate a spending slowdown, as unemployment creeps up and workers face a more challenging job market.

Concerns about the Growing Deficit

Matthew McLennan of First Eagle expressed concern about the growing government debt, reminding the audience that "government debt is a promise to print more future money to be paid back with taxes." The panelists suggested that this correlation between government debt and price levels might limit the room for further interest rate reductions.

Diversification: A Hedge Against Uncertainty

The experts emphasized the importance of diversification in investment portfolios. They noted that the U.S. stock market represents 64% of the world's stock market, and most investors tend to have a disproportionately high exposure to U.S. stocks. The panelists recommended considering at least 20% of investments in international markets, as Europe seems to have a better handle on their budgets than the U.S. They cautioned that while owning anything other than the biggest U.S. stocks has dragged down portfolio returns in recent years, the stars will eventually align for other areas to begin outperforming those expensive stocks, and diversification can help mitigate the risks associated with such market shifts.