Feeling overwhelmed with current financial and economic data? Want help explaining it to your clients? Coming up, we help you wade through it and offer advice for your practice.

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From Thrivent Asset Management, welcome to Advisor’s Market360™, a podcast for you, the driven financial advisor.

Financial professionals are inundated with economic data and information about financial products — all while trying to stay abreast of best practices for wealth management. Today’s financial professionals need to be able to speak to a wide range of subjects, because that’s what their clients are asking for.

But to answer your client’s questions, we first need to answer yours. And who better to answer your tough questions than Thrivent Asset Management’s Chief Investment and Financial Officer, David Royal. And because there are way too many questions to get to in one podcast, we culled them down to the six questions that seem to be top of mind for financial professionals. As a preview here are the questions Royal will be answering:

Question 1: Can markets continue to generate 20% growth?

Question 2: What are the trending concerns of clients right now? 

Question 3: What is the trend regarding businesses that financial investors should pay attention to? 

Question 4: Will inflation remain under control?

Question 5: How might potential tariffs affect markets? 

And Question 6: How financial professionals should handle all this economic data?

Let’s get to it…

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As we all know, over the past two years, markets were up more than 20%. So, our first question is really a two-parter: Has this level of growth happened before, and can it continue in 2025? Royal says...

ROYAL: It's happened four times since 1930. We've had 20 plus percent returns. So, the question is, can a three-peat happen? Can we have another year of 20 plus percent returns?

To clarify, in recent history, we've had a few instances of back-to-back years of at least 20% gains. There's 1975 to '76, '82 to '83, and a five-year run from '95 to '99. And of course, the previous two years — 2023 and 2024. Using the mid-90s as an example due to comparable actions from the Federal Reserve, or Fed, Royal  had this to say about the potential for another 20 percent year in 2025:

ROYAL: The Fed hiked rates starting, I believe, was February of 1994, began a rate cutting cycle pretty aggressive in 1994. And then it had to walk that back and started cutting in 1995 and engineered a soft landing. So the bullish case for why you'd see another, 20% year, would be that this is going to look like, I guess 96 or 97, historically.

As Royal mentioned, that’s the bullish case, and it’s far from a certainty. The risk to this view is that 2025 has a chance of looking more like 2018 due to interest rate volatility, which followed a steady year of growth in 2017. Royal explains:

ROYAL: 2018 was a very rough year for the markets. Particularly the latter part of the year. It was highly volatile. But that was driven by interest rate volatility. As it becomes less clear which way the Fed's next move will be, there's a non-zero probability priced into the markets that the Fed's next move could be a hike. If we start to see more rate volatility, you could definitely see more equity volatility.

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For financial professionals, client concerns often range from “how can I make more money” to “is my money going to last long enough?” For our second question we asked Royal about what the trending concerns of clients are right now.

ROYAL: I want to start with real wages. And I often talk about real wages. Real wages are people's earnings after the effects of inflation. This is what our clients actually feel and experience. Real wages from the latter part of 2021, and that's through June of 2023, were deeply negative. And what that means is people haven't made up for the losses in real wages. Not like their pay checks were going down in 2022. It's just that inflation was going up more than their wages.  And they were falling behind. They haven't caught up to where they were, going into Covid. And that's why folks are a little grumpy.

Royal address the second trend he is seeing among clients, related to wages, and that’s consumer sentiment:

ROYAL: Overall consumer sentiment is pretty solid. Our church had our finance committee meeting in mid-January. So, of course, we were figuring out the 2025 budget and our pastor made the observation that pledge giving had been stagnant for the last couple years. But then we'd had one-time gifts that kind of filled the gap. And I made the observation to him that this is exactly what you'd expect in this macroeconomic environment. And yes, I bring global macro to my church meetings. People have seen tremendous asset appreciation since Covid. Not just the stock market with those multiple years of 20 plus gains. But it's been over $10 trillion in home equity appreciation since Covid. So, people have assets and they're happy. But since real wages are still negative since Covid, meaning they haven't caught up. People are less confident in the future, and therefore they're less comfortable making an ongoing pledge commitment to church.

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Our third question for Royal was about trends in business investing. Specifically, what should financial investors pay attention to? Again, here’s Royal:

ROYAL: What happened to small business confidence right after the election? Because in 2016, it spiked. There was a historical spike. It held on for a couple of years. And would that happen again in, 2024? And surprisingly, a little bit surprising to me. It did. The majority of employment in the United States is businesses with 100 employees or less. So, if those businesses are confident, they’re hiring, that flows through the economy, that keeps wages strong, drives real wages and small business confidence, drives consumer confidence. So, a key issue for small business has been the cost of regulation, and I think that's likely to go down going forward which could be a macroeconomic tailwind. So, I know the next question you were thinking is what will drive positive real wages? That's gains in productivity. The concerns I had about productivity coming out of Covid, in that kind of 2020 to 22 timeframe is productivity went up pretty significantly during, right after, during and right after Covid. And then it came down pretty precipitously, maybe 22 into 2023. And that's largely, I think, due to the mix of goods and services. It's easier to make gains in productivity in goods production. You can make a factory more efficient. And goods demand spiked during Covid, you couldn't go anywhere, so you ordered stuff on Amazon. As the economy reopened, there was more demand for services.

It's much harder to make productivity gains in services. Imagine a restaurant. And so, we seen productivity dip. But my question was will it kind of resume on that trend? And it seems like we've normalized long-term productivity trends. And productivity’s been remarkably strong. And the reason this is important is because to have positive real wages, you need productivity. So, you can pay people more, without driving inflation. 

I don't think we've seen much of an effect yet of AI on productivity, but I think over time we will it could be an even bigger boost than, say, the PC in the late 80s, early 90s or the internet in the late 90s, early 2000. But over the long term, again, productivity is what leads to positive real wages and drives consumer confidence.

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Listeners of this podcast may recall our 2025 outlook episode where our experts weighed in on their outlook for inflation. They predicted that inflation will go up slightly and more so if tariffs are enacted. Our fourth question for Royal is about the Fed, and what he has seen inflation-wise so far this year:

ROYAL: They've made some progress, but it's uneven. It's fallen sharply. But that's still above the Fed's stated 2% target. The goal is a core piece which they measure against, the 2% target. But it's the total price level, is still 38% above before Covid. So that's where again, consumers haven't caught up. And more importantly, is it just the level of inflation? I'm pretty confident your clients aren't looking at what core PCE does every month. What they are doing is going to the grocery store and filling up their carts. And a lot of the things that have been gotten the most attention from consumers. Food—It's not just eggs, I promise—was, you know, largely flat from an inflation perspective. The first half of the year was either zero or up a tenth. But the last few months, food prices have gone up, you know, point 3, point 4, point 5 percent. Consumers see that, every, you know, when they’re buying food every week. The other thing, as a parent of a 17 and a 19-year-old driver, is used cars. Used car prices, as many of you probably know, spiked dramatically, coming out of Covid, and then, they were coming down pretty significantly, like a couple percent a month in some cases, kind of early to mid-year, the last couple of months, we've seen a resurgence, in used car prices. And, you know, I think we're going to continue to see progress on inflation. I think it'll be uneven. But just the overall level of inflation doesn't necessarily flow through to consumer confidence. If consumers don't see improvement in the things they pay the most attention to.

As a reminder, core PCE stands for core personal consumption expenditures, which is the Fed’s favored measure of inflation and excludes volatile elements such as food and energy.

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Our fifth question for Royal is about a policy that has dominated the news recently—tariffs. Will they affect markets? Here are Royal’s thoughts:

ROYAL: Political events tend not to move markets a lot over the long term. How or will short term tariffs impact long term markets? So, first on inflation, remember inflation is a rate of change. So, if we put a 10% tariff on something the prices go up 10%. And then next year, all things being equal there's no inflation. So, the inflation impact is short term. Supply chains are probably the biggest impact. They will be affected. But remember that supply chains are a lot more resilient than they were eight years ago, both because we've been through tariffs once before and then we went through Covid, and supply chains had to adjust to that too. So, what we've seen is company specific reactions to tariffs, but the market overall isn't overreacting. The market's actually up a bit year to date. So I mentioned the inflation rate already. It's rate of change. So, it won't continue to increase inflation. It would be a one-time thing. But the other thing about tariffs too is if tariffs slow economic activity, which they probably will, that would actually, potentially reduce interest rates. So, the initial impact of tariffs could be inflationary. But if they slow the economy, long-term rates might actually, you know, stay the same or even come down. We haven't seen a lot of rate volatility.

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For our sixth and final question, we asked Royal for an overall summary about how financial professionals should handle and apply all this economic data. 

ROYAL: I'm on record saying, I think the market's going to be up in 2025, but I think you're going to see more volatility, than you did in 2024. So, kind of question to ask yourself, like I did it earlier, the market was up over 20% in both 2023 and 2024, but there was a lot of volatility in 2023 and very little in 2024. I think whether you're an asset manager or an advisor or a client, you know, the first rule is don't be surprised by volatility. It happens. We've had historically low volatility. So, the first thing you do is don't sell the thing that's gone down, at least not without thinking twice about it. Because if you do that, you're going to be farther away from your long-term allocation. So, rebalance your long-term target allocation. For advisors, I think that means, you're probably going to need to rebalance more often. You can get farther away from your target if there's volatility. The question is should we buy the thing that went down? We're not always going to do it, but we're always looking for opportunities. You know, I think it's important to take a long-term view.

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We hope you enjoyed these nuggets of wisdom from David Royal. We thank him for his insights. What did you think of this episode? Email us at podcast@thriventfunds.com with your feedback or questions for our experts. Want more episodes of Advisors Market360™ and other market and investing insights? Visit us at thriventfunds.com, where you can learn how we can partner with you, the driven financial advisor. Bye for now.