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Peachtree Group's Market Update w/ Greg Friedman & Mark Zandi
Mark Zandi, Chief Econmist at Moody's Analytics joined Greg Friedman, Managing Principal and CEO of Peachtree Group for a 4th Quarter Market Update.
In our recent market update call, we hear insights from Larry Adam the Chief Investment Officer of Raymond James, alongside Greg Friedman, Managing Principal & CEO of Peachtree Group and Daniel Savage, VP Equity Capital Markets of Peachtree Group. One of the standout moments from the discussion was an intriguing investment takeaway that highlights the importance of consistent investing over trying to time the market based on political cycles.
Investment Insights Through the Decades
Consider this: if you had invested $10,000 in the stock market starting in 1970 and only remained invested during Republican presidencies, your investment would have grown to approximately $133,000 by now. Conversely, if you had only stayed invested during Democratic presidencies, your portfolio would have soared to around $700,000.
Now, here’s where the numbers become even more compelling. If you had stayed fully invested in the market, regardless of which party was in power, that initial $10,000 would have appreciated to an impressive $1.6 million!
The Lesson: Stay the Course
Timing the market based on political affiliation has proven to be less effective than maintaining a consistent investment strategy. As Larry Adam pointed out, “It's more important to be in the market than trying to find the market. I think that's a critical lesson…”
The volatility that comes with political changes can tempt investors to pull back or make hasty decisions. However, history shows that those who remain patient and invested through all market conditions tend to reap the greatest rewards.
The key is to be in the market, not trying to outsmart it.
About Larry Adam
Larry Adam joined Raymond James in 2018 as Chief Investment Officer. With over thirty years of experience in the financial markets, Mr. Adam brings a wealth of knowledge and valuable insights on the markets and economy to advisors and clients. As CIO, Mr. Adam develops the firm’s CIO view, a cohesive and comprehensive macro outlook, using insights and perspectives from the firm’s strategists. Mr. Adam presents at numerous client events and is renowned for his ability to explain complex concepts to investors.
Mr. Adam provides advisors and clients with in-depth guidance regarding the markets, including weekly and monthly commentary and quarterly outlooks. In addition to serving as President of the Investment Strategy Committee, he also sits on the Global Wealth Solutions (GWS) Diversity & Inclusion Campus Recruitment Committee, the GWS Executive Council, and the Alternative and Structured Investments Product Approval Committee.
Prior to joining Raymond James, Mr. Adam held the dual roles of CIO of the Americas and Global Chief Investment Strategist for Deutsche Bank Private Wealth Management. He received a B.B.A. with a concentration in finance from Loyola University Maryland in 1991 and received a master’s degree in business with a concentration in finance from Loyola University Maryland in 1993. Mr. Adam is an adjunct professor at the Sellinger School of Business and Management at Loyola University, teaching classes in International Finance. He received the Chartered Financial Analyst designation in 1996, the Certified Investment Management® certification in 2001 and the Certified Financial Planner® designation in 2004. Mr. Adam is regularly featured on CNBC and Bloomberg and is frequently quoted in well-known publications such as the Wall Street Journal and Barron’s.
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As we move into 2025, Peachtree Group remains optimistic about the U.S. economy. While risks persist—from policy shifts to stretched markets—the underlying fundamentals are strong. This sentiment was echoed by our recent guest speaker, Mark Zandi, Chief Economist at Moody’s Analytics, who shared his insights on the economy’s resilience and the challenges ahead, particularly for commercial real estate.
Economic Highlights and Key Insights
Mark emphasized the exceptional performance of the U.S. economy, with GDP growth expected to range between 2.5% and 3%, driven by increased labor participation and productivity gains. The labor market remains strong, with unemployment hovering around 4%, and households—especially those in the top income tiers—benefit from strong asset values and low debt-service ratios. However, he noted the pressures on lower-income households, who are feeling the strain of inflation and high-interest debt. This contrast contributes to a gap between strong economic data and public sentiment.
Risks and Projections for 2025
He outlined several key risks that may shape the economic landscape in 2025:
- Tariffs and Immigration Policies: Anticipated increases in tariffs and stricter immigration rules could amplify inflation and disrupt labor markets, especially in industries like construction and agriculture.
- Asset Market Volatility: Stretched valuations and policy-driven fiscal deficits could heighten market instability.
- Interest Rate Outlook: The federal funds rate is projected to decline to 4% by early 2025, with a further reduction to 3% by 2026. Meanwhile, the 10-year Treasury yield, a key benchmark for CRE valuations, is expected to remain flat, between 4% and 4.5%.
Commercial Real Estate and Private Credit
Mark highlighted the explosive growth over the past decade on private credit, now standing at eight times its 2010 size. While recognizing the risks of this rapid expansion, he noted that stabilizing economic fundamentals is a significant mitigating factor.
He also addressed the current state of CRE valuations, acknowledging a significant correction since 2022. Asset prices are down 10–20% from their peaks, depending on asset type, but he expressed cautious optimism for future returns as valuations in many segments approach fair value. Challenges remain, however, as muted transaction volumes and uncertainty around intrinsic values make price discovery difficult in a higher interest rate environment. However, he concluded by emphasizing that CRE, having undergone a meaningful correction, is uniquely positioned for potentially stronger returns.
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'New Game' with High-Interest Rates
Greg Friedman discussed on the Schwab network how the high rate environment is reshaping valuations and refinancing, with 90% of office vacancies concentrated in just 30% of buildings.
Schwab Network – Greg Friedman joins Nicole Petallides at the NYSE site with a deep-dive into the high rate environment facing investors right now. When looking at the 10-year Treasury rate which is "more than double pre-2022 average," Greg believes its reshaping valuations and refinancing dynamics. In the real estate realm, he sees uneven performance saying "90% of office vacancies are in just 30% of office buildings."
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CNBC: Fed Rate Cuts: A Game-Changer for Commercial Real Estate Investors or a Head Fake?
Peachtree CEO Greg Friedman was on CNBC's Fast Money discussing the effect of the Fed's recent rate cuts on the Commercial Real Estate market.
The Federal Reserve's 50 basis points cut to the Fed funds rate in September has sparked fresh conversations about its impact on commercial real estate (CRE) investments. While there's optimism in some corners about a return to a lower rate environment, the bond market signals a different story, with long-term rates remaining high and inflation risks persisting. This is a good reminder that short-term rates, set by the Fed, and long-term rates, like the 10-yearTreasury, often move independently.
Today's higher rate environment reshapes the value fundamentals of CRE. The current 10-yearTreasury rate of around 4%—double the pre-2022 average—demands that CRE values recalibrate. Reports of a 20% drop in CRE values since 2022 peak levels require context; those valuations were rooted in a vastly different interest rate environment. Today’s scenario implies a slower growth trajectory, requiring investors to adapt to a "new game" of higher rates for longer.
Across CRE assets, different sectors respond to higher rates in distinct ways. Hotels, for example, benefit from solid demand as travel returns, while multifamily assets continue to show resilience despite refinancing pressures. Office assets, however, face significant stress due to both secular and rate-driven challenges.
Even as the Fed cuts rates, refinancing on previously low-rate debt presents ongoing challenges for CRE assets, especially those with upcoming maturity dates. Higher rates elevate the cost of debt and squeeze cash flows while impacting the overall asset valuations, placing additional stress.
Despite headwinds, the current environment offers unique opportunities to strategic, agile investors. While higher rates may drive down asset values, for those prepared to navigate today's market with moderate leverage and a forward-looking strategy, today's challenges can evolve into future tailwinds. As the Fed's recent moves signal a "higher for longer" era, CRE investors who adapt swiftly may find unprecedented opportunities, making this a prime moment for decisive action in commercial real estate.
See Peachtree Group’s CEO and Managing Principal, Greg Friedman discuss this topic on CNBC’s Fast Money.