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Regions Chief Investment Officer Alan McKnight and Chief Economist Richard Moody.

Moving Beyond the Election – What’s Next for Markets and the Economy?

Regions Chief Investment Officer Alan McKnight and Chief Economist Richard Moody share what’s top of mind for 2025.

By Jennifer Elmore | November 7, 2024

With the election itself in the rear-view mirror, many people are moving beyond election season and looking ahead to 2025, while asking an important question.

What’s next?

In Atlanta, Houston, Birmingham, Charlotte and other cities recently, business and community leaders have been gathering for discussions on the markets, investing and the economy. More are expected in the new year. Offering key insights are Regions Bank’s chief economist, Richard Moody, and chief investment officer, Alan McKnight.

They’re not there to advocate for any one policy or candidate over anyone else. Rather, they help people and businesses determine how to position their budgets, their investment portfolios, and their business decisions in ways that consider the evolving landscape of the American economy.

Our team at Regions is focused on helping clients understand key issues in government, the markets and the economy that may impact their bottom line.
Alan McKnight, Regions chief investment officer

“Our team at Regions is focused on helping clients understand key issues in government, the markets and the economy that may impact their bottom line,” McKnight said. “Because of the rise of social media, the amount of information people can access today is so much greater than it was just a few years ago. But the quality of that information isn’t always the same. We feel it’s important to connect with our clients to help them navigate their financial goals – whether in business or personal wealth – with confidence.”

The Bottom Line: Regions Bank is cautiously optimistic about the markets and the economy in 2025.

Here are 5 things to know

Job Growth

The unemployment rate has pushed slightly higher over the last few months, but, Moody says, that is a function of growth in the labor force being faster than anticipated plus, at the same time, the pace of hiring slowing. After all, almost every industry caught up to where they were before the pandemic. In March and April of 2020, nearly 22 million jobs were lost due to the global pandemic. Today, the demand for labor is not collapsing, but it is settling into a more sustainable pace.

“It matters why the pace of job growth is slowing,” Moody said. “Is it less hiring or more people being laid off? The implications for the economy are vastly different, but, thus far, we see it to be the slowing pace of hiring. We do, however, closely watch the weekly data to see if there are any signs of it changing.”

McKnight agreed, adding job growth is something his team listens to closely throughout corporate earnings season.

“What we hear today is most companies have paused the hiring process, so they have job openings that they are leaving open and waiting on more economic clarity,” McKnight said.

Inflation

Fourth quarter corporate earnings will be announced beginning in January 2025, and for retailers, holiday spending will be a key indicator of how people feel about the economy. Moody says inflation continues to stay above the Federal Reserve’s 2% goal.

“Given where inflation is, we think there is room for the Federal Reserve to cut more to get to their targeted goal. Unlike other central banks around the world that have one mandate – price stability – our central bank has a dual mandate: price stability and full employment,” Moody noted. “For the last two-and-a-half years, the Federal Reserve has been focused on the inflation side, but the Federal Reserve has shifted its focus to the employment side, and it accounts for why they started to cut the interest rate.”

He added, “People are still being impacted by inflation … The cost of living is about 30% higher than it was three years ago. For some households, it is causing strain in discretionary spending.”

Consumer Sentiment

McKnight joined CNBC Money Movers recently to talk about consumer spending. Recent data shows a continued desire for consumers to spend, and with interest rates coming down, McKnight said a lot of them can afford it.

“The U.S. consumer is resilient,” added McKnight. “We need to see more data in consumer spending, but right now, things look good from a retail data perspective.”

Moody agreed, saying, “It’s not necessarily how much consumers will spend, but how they’ll spend, and does that support more online activity, which would mean you see more hiring in transportation and warehousing distribution than you do in actual physical retail stores. But the benefit is still there.”

Bright Spots in the Economy

Looking ahead to 2025, there are three key industry sectors Moody and McKnight expect to do well.

Manufacturing. Moody said manufacturing output is expected to grow, but at a slower pace than in previous years. While manufacturing continues to experience headwinds that include shortages of skilled labor and higher interest rates, automation and machine learning are two key drivers that will help enhance productivity.

“With the need to produce more semiconductor chips and electric vehicles, the opportunity to produce them in the U.S. will lead to more opportunities for manufacturing,” Moody said. “Better economic growth abroad will also support a growth in manufacturing in the U.S.”
Health Care. The economic outlook for the health care industry continues to remain strong, said Moody, with an increase in people needing access to care.

“With continued aging of our population, it creates more opportunities for the health care sector to provide access. The demographics tell us there is more demand for health care services, especially in underserved populations,” Moody said.

Technology. McKnight said the technology sector is poised for growth, especially when considering investments needed in infrastructure to successfully power technology, like AI and other innovations.

“The amount of data we are creating and consuming, and the electricity needed to power data centers are reasons why technology continues to be a sector to watch. There is a high demand for building data centers right now, and that I expect that will continue,” McKnight said.

Government Issues to Tackle

With a new Congress and president in 2025, there are two key issues Moody and McKnight expect as key priorities for government leaders.

Taxes. Select provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 will expire on Dec. 31, 2025, and Congress must decide to extend those provisions or allow them to expire.
Debt Ceiling. On Jan. 1, 2025, the debt ceiling will be reinstated. If the ceiling has not been addressed by Congress, the Department of Treasury will have to use extraordinary measures to extend the debt ceiling so the federal government will not default on its debt.

These two issues, coupled with the federal budget deficit, are expected to have a continued impact on the economy.

“We’re told that for fiscal year 2024, we had a $1.8 trillion federal government budget deficit, which outside of the first two years of Covid is the largest on record,” Moody said. “So, if that’s your starting point, and then what we’re hearing on the political front is tax breaks, spending increases, I think the markets are becoming more mindful of that.”

McKnight added markets are bracing for bigger deficits.

“If the government is running a budget deficit, they have to borrow more,” McKnight said. “If they want to borrow more in the markets, it should cost them more to do so. The expectation of these larger deficits is one reason that Treasury yields have been rising even after the Fed cut the funds rate.”

Moody and McKnight share regular commentary on their views of the markets and the economy to help people stay informed. Commentary is available to Regions customers and noncustomers alike and can be found here.

In addition, McKnight regularly speaks with national media to share his views on market activity, the economic impact and Regions’ outlook moving forward. Upcoming interviews are listed below.