In this week’s episode of Retire in Texas, Darryl Lyons, CEO and Co-Founder of PAX Financial Group, explores Charles Schwab’s 2025 US Stock and Economic Outlook and its implications for investors in the coming year. Darryl provides a thoughtful breakdown of the report’s key insights, covering everything from tariffs and trade policies to economic growth, housing affordability, and opportunities in the stock market.
This episode takes a balanced look at how policy changes, economic trends, and market volatility might shape the 2025 financial landscape, helping listeners better understand what to expect in the months ahead. Whether you’re a seasoned investor or someone simply curious about where the economy may be headed, this discussion offers clarity and actionable takeaways.
Key highlights of the episode include:
- The potential impact of tariffs, mass deportations, and trade dynamics on the US economy and inflation.
- Why small businesses remain optimistic despite inflationary challenges and how they drive job growth.
- The importance of domestic production, innovation, and unexpected market upsides.
- Insights into the housing market, affordability concerns, and the role of foreign labor in construction.
- Opportunities in stocks, small-cap companies, private credit, and international markets as we enter 2025.
- Practical advice for weathering market pullbacks and preparing for volatility in a shifting economic environment.
To learn more and explore how PAX Financial Group can guide you through economic changes, visit http://www.PAXFinancialGroup.com. If you found this episode valuable, share it with someone else who might benefit!
Transcript:
Hey, this is Darryl Lyons, CEO and Co-Founder of PAX Financial Group, and you’re listening to Retire in Texas. This information is general in nature only. It’s not intended to provide specific investment, tax, or legal advice. Visit PAXFinancialGroup.com for more information. So, I want to discuss with you, and I’ll put a link in the show notes. Charles Schwab put out a 2025 US Stock and Economic Outlook paper.
Just going to provide some highlights for you guys. Charles Schwab, for those that don’t know, large investment manager, one of the largest in the world, old, 1963 started by Charles Schwab. He actually wrote some newsletters and then it ended up becoming a kind of a stock trading platform. But one of the things that they do that’s important for a lot of people to know is that they provide custody of client assets.
They’re one of the larger ones. So that way when somebody invests with PAX, it’s not with like PAX’s money where we’re co-mingling the money. It’s a separate, legal shield. So, they provide custodial services and abide by all the government regulations. Fidelity does it, LPL does it. Edward Jones, so Charles Schwab is really nice because they’re independent.
They don’t, you know, manufacture products to be sold. Maybe they do. I’m sure they do somewhere, but I don’t use them. And so, they do have a good research arm. Jeff Kleintop runs it. And Jeff’s been around a long time. You probably seen him on CNBC. So, he’s part of developing this outlook. And I want to just cover some things in this outlook.
I think it’d be just helpful just to get your head around what the market’s thinking right now. And I know you’re thinking a lot of these things. So maybe I can fill in some gaps. Or at least take you to a place where you do your own due diligence and research. But I want to start us out just with a little humor.
At the border, a man drives up on his bicycle with a sack on the luggage rack. The customs officer says, do you have something to declare? The man says, nope. Customs officer says, well, what’s in the sack? The man said, sand. So, during the check, it turns out its actually sand. So, every day for a whole week, the man comes with the bike and the sack on the luggage rack.
And on the eighth day, the customs officer becomes suspicious. The customs officer says, what do you have in the sack? The man said, just sand. The customs officer says, let’s see. This time he sifted through the sand and yeah, sure enough, it was just the sand. And this man, he continues to visit the border every single day.
Two weeks later, the border guard has had enough and sends the sand to the lab. And the result is it’s just sand. After another month. Of these sand transports, the customs officer can’t stand it any longer. And asks the man. Okay, I’ll give it to you in writing that I won’t tell anyone. But you’re smuggling something. Please tell me what. And the man said bicycles.
Now, I thought that was humorous. And I thought to his apropos for these tariffs, in these international trade conversations we are about to have. And much of this Charles Schwab economic outlook was rooted in Trump’s tariffs. And everyone trying to figure that out has created some degree of uncertainty. Now, the construction of the political framework has been defined now.
So, we know we have a Republican president and a Republican Congress. Now, historically, under those types of frameworks, the Dow Jones Industrial Average has averaged 7.3%. That’s just an information point. There’s a lot of variables in that. But just to know that’s been the average return during that makeup. So, what does it look like under a Trump administration?
What are the considerations that may move the needle one way or another? And tariffs are the bulk of conversations that are taking place. And of course, one of the ones that’s going to hit headlines is the idea of a mass deportation. Now, this is not unfamiliar territory. In 1956, Eisenhower had something called Operation Wetback, where he did, a mass deportation in Operation Wetback of 1.3 million people.
And growing up in the Rio Grande Valley, I’m quite surprised that that was the name. But that’s the name. So, the prognosticators are just trying to determine is it going to be close to 1.3, or could it be closer to 8 million? And so, some of the modeling has both of those extremes in it. And then there’s modeling that kind of looks at both a deportation scenario and in various volumes, along with tariffs, you know, is it a 10% on every one tariff, or is it going to be closer to like 60% on China and 25% on Canada?
What does it look like? And so, Charles Schwab ran a bunch of scenarios with those variables intact. And the idea behind all of those scenarios is that the US economy will have lower and slower growth and higher inflation. Do we believe that to be true? I think this is where I get a little perturbed with economists, and I think most of us do.
There’re always indirect consequences that they can’t define. And that’s generally rooted in human behavior that it’s very hard to quantify. And so, economists will always put this out there. And the data does tell us a story. But it’s just really hard. And I’ve seen this over the years. As you know, economists tell you what the market’s going to do over the next ten years.
And I always find it peculiar. You can’t factor in human innovation. Like what are we going to invent? So how do you model that? And I think the same thing goes here that Charles Schwab would suggest to you based on, just the probabilities of various outcomes of deportation and tariffs. What they’re suggesting is the market’s going to not do as well, or the U.S. economy is not going to do as well.
But what does that do for domestic production innovation and small business? And that’s one thing that you just can’t measure. So, I think that we all know that there’s going to be some upside. I think the challenge is what we’re seeing right now is nobody can really factor what that upside looks like now.
Even if Charles Schwab is suggesting that it’s going to be slower growth. Just to let you know, many of these scenarios is not a materially slower growth scenario, especially when you factor in how the US dollar will move in these scenarios because, most people, at least Charles Schwab will say that tariffs will help the US dollar. So even though you may pay more for a Porsche or BMW, because of a, you know, retaliatory tariff, in Europe the dollar would be in these scenarios stronger.
So, it would be offset. And so that’s a consideration that does need to be taken into consideration. You have the tariffs, and you have the deportation that certain economists and I would suggest you those with bias which suggest is going to result in a lower and slower economy. And then if you were to factor what are the indirect consequences, like, you know, maybe somebody starts a new steel business in the United States or whatever.
And then the factor of the US dollar, how that that would be stronger. Once you add those factors in, you actually see a more robust economy. And I think that’s alluded to a little bit in the Charles Schwab paper. You’ll have to check it out for yourself. Like I said, I’ll put a link in the show notes.
You know, I think you’ve got an interesting window coming up, even maybe now to travel to Europe. You know, we continue to see this dollar strengthen. And I believe these tariffs will probably continue that trend. We just don’t know the retaliation effect. I was at a workshop just recently, and somebody who knows Mexican American international trade much better than I do.
And the suggestion was that it doesn’t matter. Mexico is going to do whatever Trump asked. And I know that politically we won’t hear that rhetoric. But that was what somebody smarter than me said. Trump is going to say, this is what we’re going to do, and Mexico will say, okay, so we’ll see how that plays out.
I mean, the posturing will be much different. On television for sure. And the posturing, you know, on that same note, the posturing for deportation will be much different. I mean, we will, absolutely. MSNBC and some other, biased news networks that have been exposed in their bias over the last five years. I don’t think there’s any arguing anymore.
On what you know, what that is, but they will show the really probably the peripheral separation of family stories that may or may not be real. It’ll remind me a little bit of that time when they highlighted that Border Patrol agent whipping a migrant that really wasn’t a whip. It was just a camera angle.
But a lot of people believe that, like for a long, long, long time, even, our vice president believed that the Border Patrol was whipping. And so, I think we’ll see some of that same rhetoric when the deportation. And so, you just got to be smart about that. But those are the optics that are going to occur. You’re going to see some optics in the deportation space.
And you’re also going to see some in the rhetoric of tariffs that really don’t describe very well what’s happening behind closed doors domestically. The expiration of the TCJA, Tax Cuts and Jobs and Reconciliation Act. That’s going to be a conversation that’s going to happen quite a bit because this act expires was actually one that Trump put in place.
It expires at the end of 2025. There’s a lot of factors in there, but the one that you really like that you don’t know is the increased standard deduction a lot of people love that makes life easier. We’ll be paying attention to whether or not that goes away. I wouldn’t imagine it would, because it’s obviously Trump’s baby.
And I think a lot of people like it. So, we’ll see how that plays out. But the expiration of that, that’s really important to keep our eye on, especially when it comes to like planning scenarios. And maybe doing some Roth conversions under, you know, it’s very specific and personalized, but make sure you work with your advisor specifically in 2025, because we might want to do some Roth conversions in anticipation of how that Tax Cuts and Jobs Act is going to play out.
So, we’ll see some of that. All of this will factor into how, you know, unemployment will look. And right now, we’ve got a pretty like the nice number. They look for a nice, sweet spot of unemployment. They don’t expect to be perfect, but, right now, unemployment’s pretty good. It’s surprising how much, and Schwab alludes to this.
They even said this, foreign born individuals have accounted for nearly all of the U.S labor force growth over the past four years. Foreign born individuals have accounted for nearly all of the US labor force growth over the past four years. And so, you know, some of that immigration has helped, you know, we know that I mean, there’s no denying that.
It’s just doing it. And I think most people want to do it in an orderly way, in a way that’s not chaotic. And without, you know, some boundaries in place. And so, I think for the most part, and I don’t, I can’t speak for everyone. But in the financial space, we know based on demographic trends in our country, that immigration is necessary for our economy, for a whole machine to work.
And so, it’s just the idea of it has to be done, like I said, orderly and small businesses, you know, depend on, you know, foreign work. I mean, the National Federation of Independent Business Owners is a good indicator of optimism in the markets. And right now, small businesses are very, very optimistic. Charles Schwab alludes to this. And that’s very important because two thirds of all jobs in the entire country are from small businesses.
They’re suggesting, is the biggest challenge that they have is inflation in the import of their input costs. And so hopefully, you know, inflation is trending down. We know that. But we’re still we’re still standing on the shoulders of a 20% increase that happened over the last several years. And a lot of the businesses can’t mark up their products to account for that high input cost.
Housing affordability is alluded to in this Charles Schwab research report. And yeah, that’s going to be tough. And right now, new, I’ve talked about this before, but new, first-time homebuyers, it’s been the lowest of all time because of the affordability issues. And I don’t know, this is one thing that we have to figure out is how do tariffs impact the input cost of the materials.
And of course, you know, you look at many construction workers, they’re not U.S. citizens. And so, what does that look like if we don’t have any construction workers. And so, we’ll have to pay attention to that. There is a good index that’s alluded to in Charles Schwab. I think they actually show it. The National Association of Realtors looks they have an affordability index.
That’s a nerdy way of saying is the housing market affordable? And I’d really like to see that, get to a place where it is affordable, especially, I have kids that are going to be first time homebuyers. I want to see them being able to capture and participate in that American dream. So, I talked a lot about the economy, and I don’t have much time left to talk about the stock market, which actually they mirror each other, but they’re not always exactly the same thing.
I think if you look at the stock market, what Charles Schwab would say is that if you just shut your eyes, if you invest at the beginning, you shut your eyes. And at the end of the year, you probably have more money in the stock market than you know than what you started with at the beginning of the year.
The problem is, in between, there’s going to be a lot of reasons for you to sell. And I’m actually a little bit nervous about this because we haven’t had one of these 20% drops in the market in a long time. And we used to have them more often and we’re just not used to that. So, when the market drops 20% in the next in 2025, we’re all going to freak out, I promise you.
I promise you I won’t freak out. I mean, I am absolutely training myself for, for these events. And I, you know, I’m hoping that, I’m equipping all of you guys to just mentally prepare for these pullbacks and hopefully you maybe even have squirreled away some cash to buy in these opportunities. The market is trending very well.
They measure this something like the 50 day moving averages above the 200 day. It’s a little nerdy thing, but it’s called momentum. And the momentum is there. A lot of people ask themselves well this market’s doing so well. Are we long in the tooth? By the way is an old saying like a horse you know have these big teeth.
And if the teeth are really long that means they’re old. So is this stock market getting too old. And in some places, it might be, but not everywhere. I mean, we’re actually forgetting about some areas of the market like international piece. If you look at 2017, international did really well and we might be coming around to another international peace.
But if you look at your investment portfolio, the international is kind of been, you know, not as good as domestic. And it is this idea, I think, of American exceptionalism and it’s yeah, there’s some truth to that. It’s just pretty exceptional right now. And bonds on the other hand or you know, that’s been, you know, hit or miss.
But I want you to know that if you’re not talking to your advisor about private credit, that seems to be the place. It’s very similar to bonds. They are pretty much bonds, but it’s a really good opportunity for us to get enhanced returns for clients. But municipal bonds are good. Still, high yield. There’s always pros and cons of bonds, but they’re still doing their job.
They’re doing it better than they did 6 or 7 years ago. For me personally, I like stocks. I think owning a company makes a ton of sense. And then, of course, the smaller companies like Mitel’s and Smucker’s, these are kind of small mid-cap companies. They’ve been neglected over the years. So, they’re a little bit on some of them are on sale right now and hopefully that will turn, and we’ll be able to capture those returns in the portfolio.
Because if you look at the small companies haven’t done as well as the big companies, man, I’ve got a still more content. Would you mind if I keep running just for a little bit longer, just a little bit more? Because I want to talk about this peripheral market that comes in, but when bubbles come or excess money comes, you’ve got these weird markets like an art market.
Some guy bought it for $6.2 million. He bought a banana that was duct taped to the wall for $6.2 million. And you know this, he bought that because he had made a bunch of money in crypto, and he just wanted to show off, I think he just wanted to make a statement that he made a lot of money in a specific coin.
And that was that was kind of a promotional effect. And so, we ask ourselves, I’m getting the question a lot. Should I own crypto now? I don’t really know. We’ve had allocations to crypto for our clients, not across the board, but you know, when it’s been appropriate, 1% allocation, maybe 2 or 3%. But here’s the thing about investments in general.
It generally makes sense to be greedy when others are fearful and fearful when others are greedy. And right now, people are pretty greedy. And in the crypto space, that doesn’t make me feel good about entering. I usually want to enter when it’s uncomfortable and nobody wants it. That, to me is the illogical logic that has served a lot of investors well.
So, you can certainly own crypto, it may go to 200,000 in Bitcoin, but it’s just one of those things where people are really excited and that’s usually not the best time. I’m kind of one of the type of people that just want to stay disciplined. And, you know, buy good companies, and own them for a long period of time.
It’s a lot to cover. And we didn’t even cover the debt ceiling. I’ll cover that another time because that’s going to be a different conversation. But that’s one of those things that hasn’t been addressed lately that we definitely need to talk about. We didn’t even talk about oil, natural gas. We didn’t talk about Doge, the entity that’s designed to reconstruct our, the government efficiencies.
So still a lot to talk about, the Charles Schwab document and again I’ll put this in the show notes is pretty efficient and covers a lot of ground. I gave you the executive summary so you can read it if you want to confirm what I’m saying is true. Or you can just share this podcast with others, which I do want to encourage you to do, to share with others.
I think people do need to hear this particular angle about the markets in general, because whenever you guys give me feedback, you say it’s really helpful. And so, I want to help a lot of people. So please be sure to share this. Now I’m going to leave you with this. It’s a summary. That’s at the very bottom.
And I’m going to quote it here. It says to borrow something from our founder, Chuck Schwab. It’s fond of saying here it is. Investing by nature is an act of optimism. And so, we remain optimistic, but we also need to be risk mindful, especially in a year with so many crosscurrents at work regarding policy. And so, I am very grateful for all of you guys as we come into this new year.
I hope all of us at PAX can lead you well. I’m prayerful that we have a good team and good community that can come together and work together through all the ups and downs in 2025. Thank you. And remember, you think different when you think long term. Have a great day.
Resource:
2025 Schwab Market Outlook | Schwab Funds
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