2025 Diverging Economy: Tariffs, Low Sentiment, High Markets, Rising Costs

Key Quotes

"2025 was the year we began to full on drown in bad feelings about the economy we're sick to our economic stomachs about the future of prices and inflation and jobs and housing consumer sentiment is the canary in the coal mine and it's been chirping louder and louder over the last three years or i guess chirping less and less is how canaries work in the coal mine anyway consumer sentiment for your consideration"

Kenny Malone argues that consumer sentiment, reflecting people's feelings about the economy, was the defining indicator of 2025. He emphasizes that this sentiment has been at historic lows for three years, indicating widespread economic unease regarding prices, inflation, jobs, and housing. Malone presents this as a crucial warning sign, akin to a canary in a coal mine.

"so the tariff story was huge this year remember liberation day and trump imposing like super high tariffs on countries around the world including like a territory whose population was largely penguins you guys remember that then like the stock market freaked out and then like president trump paused tariffs and then there were like negotiations and the back and forth and the up and down and the drama costco just filed a freaking lawsuit against the trump administration over them this is the economic story that keeps on giving and this story it's historic we're talking like a paradigm shift for the economy"

Greg Rosalsky champions tariffs as the most significant economic story of 2025, highlighting the dramatic increase in the average effective tariff rate to 16.8%, the highest since 1935. Rosalsky points to the considerable market volatility, ongoing negotiations, and even a lawsuit filed by Costco as evidence of the widespread impact and ongoing drama surrounding these tariffs. He frames this as a historic paradigm shift for the economy.

"my indicator of the year is the cape ratio this is the cyclically adjusted price to earnings ratio it measures how expensive share prices are relative to how much money they actually earn the higher the cape ratio the more expensive stocks are and this indicator is the highest it's ever been apart from just before the dot com crash and that is as frightening as any horror story because when stocks are this expensive they tend to underperform over time"

Darian Woods identifies the Cape Ratio (cyclically adjusted price-to-earnings ratio) as his indicator of the year, explaining that it measures stock market expensiveness relative to earnings. Woods states that this ratio is at its highest point ever, excluding the period before the dot-com crash. He warns that such high valuations typically precede stock market underperformance, likening the situation to a frightening horror story.

"the indicator i'll be watching in 2026 is the federal funds rate aka the federal reserve's benchmark interest rate so right now the rate is between three and a half and 3 75 the fed you might remember did three consecutive rate cuts at the end of last year and these were not unanimous decisions you are seeing some divisions within the fed about what to do on interest rates so my indicator is really about the future of the fed and how it's going to make decisions this year"

Waylen Wong selects the federal funds rate, the Federal Reserve's benchmark interest rate, as his key indicator for 2026. Wong notes the current rate and the Fed's recent, non-unanimous rate cuts, indicating internal divisions. He emphasizes that this indicator reflects the future direction and decision-making processes of the Federal Reserve.

"my affordability indicator to watch in 2026 are electricity rates oh i think my bills already been up this last year almost certainly yeah i mean for a long time electric rates in the us have been pretty stable for like 20 ish years but recently like you said the cost of electricity in the us has been climbing way faster than overall inflation electric prices have jumped about 7 oy okay so 7 compared with you know just under 3 for general inflation so this isn't something to do with ai and data centers yeah everything has to do with data centers and ai in 2025 and 2026"

Steven Passaha chooses electricity rates as his affordability indicator for 2026, contrasting it with more commonly discussed items like groceries and housing. Passaha explains that while electricity rates were stable for two decades, they have recently been climbing significantly faster than general inflation, with electric prices jumping about 7%. He attributes this rise, in part, to the increasing demand from AI data centers.

"my indicator to watch this year is consumer spending oh not consumer sentiment huh i feel like we've been obsessed with consumer sentiment but this is a little twist i know sorry to kenny but yeah our data shows the american consumer has actually been resilient in 2025 which is confusing because as we've heard consumer sentiment has been pretty bad it hit 30 below sentiment in december of 2024 this time last year yeah and if i got it right you know like the highest rollers are spending so much it's basically hiding the difficulties of everyone else"

Cooper Cass McKim's indicator for 2026 is consumer spending, distinguishing it from consumer sentiment. McKim points out that despite poor consumer sentiment, actual consumer spending has remained resilient in 2025, largely due to high-income earners. He explains that the top 10% of consumers, who make $200,000 or more annually, account for a significant portion of spending, benefiting from rising asset values and a strong stock market.