The Market’s Biggest Risks and Opportunities in 2025 — ft. Tom Lee

Scott and Ed open the show by discussing Omnicom’s acquisition of Interpublic, an update on the TikTok ban, and OpenAI’s new ChatGPT pro subscription. Then Tom Lee, the co-founder, managing partner and head of research at Fundstrat Global Advisors, joins the show to discuss his outlook for 2025, including why the S&P might hit 7,000 next year before retreating in the second half. He explains why he thinks small and mid-cap stocks will be successful, and why he believes the dollar could maintain dominance in a more Bitcoin friendly world. Tom also breaks down the potential downsides of AI, tariffs, and the Department of Government Efficiency. Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 1:29Scott Galloway?

  Today's number, $902. That's a record amount the average American consumer is expected to spend this holiday season. True story, Ed, when I was a little boy, Santa gave me coal one Christmas and I thought, that dick, I'm gonna get him. And I poisoned his cookies. That motherfucker found out and killed my father, Ed.

• 1:59Scott Galloway?

  Little holiday cheer. Holiday cheer. Little holiday cheer. Do you get it? I got it. Dad, my dad was Santa. By the way, let's talk a little bit about me and the holidays. Specifically, how much I hate the holidays. I mean, I really do hate the holidays. When I was a kid, all I remember about the holidays were, one, realizing everyone was getting gifts except me around the neighborhood. And I came home and like, what gifts to my parents? And they're like, oh, he's figured out we're supposed to get him gifts. And they took me to the mall where my mother and father got into an enormous argument because he was buying her a rabbit coat and felt that she wasn't that appreciative. And then soon after they divorced, which is a shocker, I know.

• 2:38Scott Galloway?

  And the first Christmas I remember, I really remember is my dad with his new wife, some like flight attendant with big hair that smelled like, I don't know, hair, she had so much hairspray, it felt like one of the Christmas candles could have set her on fire. And then he was like trying to do his, you know, his moves and my mom's friend had to bring in my gifts because my mom refused to come inside or see my dad. And my dad was sitting there like making the moves on some Real Housewife of Laguna. Anyways, Ed, happy holidays. Happy holidays.

• 3:12Ed Elson?

  Yeah, that wasn't very funny. It was quite sad, actually.

• 3:15Scott Galloway?

  Oh, it gets worse. It gets worse. Tell me about your holiday cheer.

• 3:19Ed Elson?

  I'm feeling pretty good about the holidays. I know I've got to buy my Christmas gifts, which is always a huge pain. Do you have any recommendations on what I should get for my dad, by the way?

• 3:31Scott Galloway?

  Hmm.

• 3:32Ed Elson?

  Anything you would want for Christmas?

• 3:33Scott Galloway?

  A son that loves him? Um, no. Uh, what would I want? I'm not a good example.

• 3:40Ed Elson?

  What is, what, let's, let's, how about this? What is the best Christmas gift you have received? And let's keep it within reason.

• 3:48Scott Galloway?

  Oh, when my kids give me photos of me and them, I like nice photos where they've done something and they frame it. Yeah, I think photos are the

• 3:55Ed Elson?

  It's a good idea.

• 3:56Scott Galloway?

  Other way to go, or if he's super interested in a book, like maybe, I don't know. Let's be honest, the ultimate gift is a signed book of the algebra of happiness by Professor Scott Galloway. More importantly, what are you giving your girlfriend? Or is that give it away?

• 4:10Ed Elson?

  Uh, I've already, I've already bought that. I can't give it away.

• 4:12Scott Galloway?

  And is it sentimental or is it blingy? Like daddy's doing well and expecting a big bonus of which he'll be very disappointed in. Just by the way, I just, I don't want to, I don't want to reveal too much about your review tomorrow, Ed, but I hope you kept the receipt. I hope you kept the receipt. All right, get to the headlines.

• 4:30Ed Elson?

  Let's do it.

• 4:41Ed Elson?

  Advertising agency Omnicom is acquiring Interpublic in an all-stock deal that will create the world's largest advertising agency. The deal is expected to close in the second half of next year. Interpublic's stock rose more than 10% on the news, while Omnicom's fell 6%. Last week, a federal appeals court decided to uphold the US TikTok ban. ByteDance then asked the court to temporarily halt that ban, pending Supreme Court review. But the ban will go into effect on January 19th unless the company can find a new owner. And finally, OpenAI launched a $200 monthly subscription that provides users access to an exclusive version of its reasoning model 0.1.

• 5:22Ed Elson?

  This version, called 0.1 Pro, will use increased compute power to handle more complex questions. The ChatGPT Pro subscription also includes unlimited access to GPT-4O and advanced voice mode. Scott, your thoughts, starting with Omnicom acquiring Interpublic Group, biggest advertising agency in the world now, ahead of Public C and WPP?

• 5:48Scott Galloway?

  And yet, the smallest player in big tech, if they were a big tech company. It's just, this hits hard for me or has real resonance. When I was in business school, like most kids, I went back to business school because I had no idea what the fuck I wanted to do. I just knew I didn't want to be an investment banker. And I took a course with David Acker, brand strategy, and I thought, he talked about the importance of color and brands and managing brands as assets, and I just fell in love with the whole domain. And I said, I'm going to start a firm based on your principles, you want to join me? And he said, no.

• 6:17Ed Elson?

  It's going to be me in a few years.

• 6:21Scott Galloway?

  Yeah, my, there's some of my qualifications to start a brand strategy firm where I had two years' experience in fixed income and Morgan Stanley, but that didn't stop me. I started the firm, it did quite well, and David ended up joining us as vice chair. And essentially, we were always hoping, I always wanted to sell. I'm like, I figured out pretty quickly after investment banking that being in client service sucks because clients get to tell you what to do. And so I thought, okay, I'm going to be in this Joey Bagadon and service business for three to five years, I'm going to sell it and go do something else. And it took me eight years and ultimately I sold it to Dentsu. But the masters of the universe were WPP, IPG and Omnicom. And I met with all three of the CEOs, including Sir Martin. And the real innovation, there's a couple of things. One, they were the masters of the universe because they were playing off or leveraging

• 7:06Scott Galloway?

  or skimming the ultimate algorithm for shareholder value creation from 1945 to the introduction of Google. And that was a mediocre product wrapped in brand codes that you could pound away at, advertising on one of three channels where all of America was watching five hours a day. It was, we didn't realize, the thing that built these, the thing that built these empires, and they were empires, was nobody realized how incredibly inexpensive advertising was up until media fragmentation in Google. You could literally blanket the nation in a creative and get everybody up to speed on why you were tough like a rock or to the choosing moms choose Jif in almost no time and sell a shitty product for a decent amount of money. And then Google showed up and said, no, it's about finding the right product, finding the right piece of information.

• 7:51Scott Galloway?

  We're going to suck all the oxygen out of the room. We're going to be able to identify the exact customer that's looking for health insurance in New Jersey, fill the top of the funnel and help consumers do diligence faster than deferring to the brand, which a brand is, a brand is a shorthand for diligence. And slowly but surely, this tectonic shift of capital has resulted in that now in one week or in one day last week, Alphabet loses twice the value of IPG in a single trading day. Over the last 20 years, just slowly but surely, they have leaked all of their power, all of their influence, all of their shareholder value to big tech. And this is not, this is not strategic. It's, it's necessity, it's survival.

• 8:36Scott Galloway?

  And that is IPG is now the number four player, I believe. They have absolutely no future. They've got to bulk up. And let me tell you, if you're at IPG or even an Omnicom, but more so IPG, you're in headquarters, you do not have a direct line between you and a client and revenue, you're probably out of work in the next six months.

• 8:57Tom Lee?

  Merry Christmas.

• 8:57Scott Galloway?

  Yeah.

• 8:58Tom Lee?

  Merry Christmas. Dun, dun, dun, dun, dun, dun, dun, dun.

• 9:06Ed Elson?

  Just a start.

• 9:07Scott Galloway?

  I'm in such a pissing mood.

• 9:09Ed Elson?

  I know.

• 9:13Ed Elson?

  Just some data that really drives your point home. Since 2019, the revenues of these ad agencies have grown 1%. And meanwhile, total advertising spending around the globe has grown 45%. And I mean, the story here is what you'd expect. Everything is going to the digital platform. So global ad revenue is going to surpass a trillion dollars for the first time this year. 82% of that revenue is happening on digital platforms now. And almost two thirds of that digital ad revenue is going to three companies, Amazon, Google, and Meta.

• 9:53Scott Galloway?

  What's interesting about the global ad market is if you look at it as a percentage of GDP, it's usually, I think, around 1.3 or 1.5%. And it's surprisingly resilient, but it's surprisingly low growth. It always sticks around 1.5% of GDP. So you just said a trillion dollars, 1.5% would be, what, 67? So that would mean the global economy is approximately $67 trillion, which is somewhere in striking distance or spitting distance of what the actual global economy is. So that's the good news is it never really goes away. The bad news is that it is a zero sum game. And that is if Alphabet grows its revenues 20 billion, that's coming out of traditional media. If you are tracking in your 40s and 50s in the agency world, then just ride it out.

• 10:37Scott Galloway?

  And these are client driven businesses still. You still do need creative. If you're in your 20s or 30s, you not only don't want to be in the ad supported services business, you don't want to be in the ad supported media business on the client's side. Look at all the biggest companies that have made 10s or hundreds of billions of dollars in value. They're not brand driven, they're innovation or supply chain. So this really is, Don Draper is not only dead, he's been drawn and quartered. And this is evidence of that. And they need to consolidate. Anyways, thank you for my TED Talk.

• 11:05Ed Elson?

  But as you say, it's a zero sum game. So the money is going somewhere. Ads are continuing to happen, just not in the same way. So, I mean, just to take this a step further, like the guy working at IPG, who's like 25 years old and just starting his career in advertising.

• 11:23Ed Elson?

  You say, don't work at IPG. I agree with you. Where should he work?

• 11:26Scott Galloway?

  Anywhere else.

• 11:27Ed Elson?

  Go to Google, go to Meta and work in the marketing specialist.

• 11:31Scott Galloway?

  Yeah, get into the business of data-driven and platform-driven customer acquisition, or get on the client side where you're focused on using these new platforms to increase customer acquisition or customer retention. But, and I want to be clear, these are, these are well-managed companies. I still have a lot of friends there. But if you're a talented young person, momma, don't let your kids grow up to be in the ad-supported brand business. And by the way, just to, just to add on to my, my word salad here, I teach brand strategy and I recognized about 10 years ago, I looked at my curriculum or I looked at my syllabus and I thought, what am I doing? I'm training kids to go to work for Kraft Foods as a brand manager and be laid off in three to five years.

• 12:13Scott Galloway?

  I gotta start teaching kids about mobile, about, I gotta start teaching, teaching them about acquiring customers on social, about supply chain as it relates to brand. Because I think the marketing department, and I've said this out loud at NYU and every other major university, should probably be dissolved and folded into the information systems department and maybe the operations department. I just don't think, you know, I've described CMOs and I said this at a conference of CMOs a few weeks ago and went over like a fucking lead balloon. I said, you're the second lieutenant in Vietnam. You're dead within two years. Unless you can recast yourself as the person who understands supply chain or how to unlock product innovation with digital, thinking you can, you can fire the

• 12:55Scott Galloway?

  agency the old CMO had and bring in a new, I don't know, stupid fucking logo, Jaguar. You know, that, that shit's not going to work anymore. No one's going to pay you to go collect awards that can for overpaying your vendors. Oh my God, I'm in a terrible mood. What CEO has been murdered this week? Let's talk about that. By the way, that dude follows me.

• 13:15Ed Elson?

  I know. I was gonna bring, I was considering bringing it up.

• 13:18Scott Galloway?

  Talk about ruining your fucking night. The fucking FT calls me last night and says, and says, do you have any comments on this individual and what happened and the fact that he follows you?

• 13:28Ed Elson?

  So he, he follows 72 people on Twitter. One of them is Scott.

• 13:33Scott Galloway?

  There you go.

• 13:33Ed Elson?

  Comments, Professor Galloway?

• 13:35Scott Galloway?

  I'll tell you what I told the FT. I have absolutely fucking literally no comment. I don't know what to make of it. It is a terrible situation. I think the whole thing is inspired, a tragedy-inspired conversation around healthcare in the US. I think it's also, and again, I'm a hammer that sees everything as a nail, another conversation. Around young men, because this is just so, it's so discouraging.

• 13:57Ed Elson?

  The comments on our YouTube when we covered this, I found so interesting where people thought that you in particular, but they thought that I was sort of a sycophant in this, were sort of like letting United Health off the hook or something, or not seeing this as a big issue in in healthcare. It's like we have, we've talked about the problems in healthcare at length on this podcast before. Like, we, we do not like Big Pharma. We're very outspoken about that. There's just so many unknowns here. So like, I just, and people were upset with me for saying, I don't have much of a response to this. It's like, it's one of these weird issues where people expect you to like have a big take. And that to me is

• 14:41Ed Elson?

  like a big warning sign of any conversation.

• 14:43Scott Galloway?

  What you just said is really important, and it's something I didn't learn until I was older. You don't have to have a take on everything. You don't, and not only that, you don't, you don't have an obligation every time you have a take to expectorate it to vomit it out into the rest of the world. It's okay to say, you know, I don't know, and I don't have a viewpoint. I don't know. No comment. If anyone with a pulse used to call me from the media, I'd blather on for an hour because I was such a narcissist. And now I'm just comfortable saying.

• 15:13Ed Elson?

  Well, now you've, now you've already got the platform. I'm gonna keep blathering.

• 15:17Scott Galloway?

  There you go. Yeah, but now I'm comfortable, I'm comfortable saying, I don't know. I have no domain. I turn, I mean, I'm bragging now, but I turned down 80 or 90% of the media requests because they'll call and say, what do you think of the new all AI generated Coca-Cola ad? And I'm like, I don't know. I don't care. I don't care. I don't care. I want to go to Africa with my boys. My, my, I just want to go to Africa.

• 15:41Ed Elson?

  Well, you still have two takes left to give us because we're going to move on to TikTok now. So the appeals court upheld this decision to ban TikTok. I just want to go over what is likely to actually happen here or what could happen. Because I think there are a lot of TikTok users who are concerned that their TikTok apps will just disappear on the deadline, and that won't happen. But what will happen, just so everyone knows, is on January 19th, Apple and Google will have to remove TikTok from the app stores because if they don't, they'll have to pay huge fines. So what that means for you as a user is you won't be able to download a new TikTok app, but you also won't be able to update your existing TikTok

• 16:25Ed Elson?

  app. And that's the big problem for TikTok because without the ability to do software updates, TikTok is gonna start to get very buggy. It's gonna get all of these glitches. It can't like clean itself. In other words, TikTok won't just disappear overnight, but it will die a very slow death. So this is definitely a big problem for TikTok. I think it's worth going over what are the alternative timelines where TikTok doesn't die. And the way I see it, there are sort of three ways that this could go down. The first is that ByteDance sells TikTok to a US company. That's sort of the ultimatum that the US government has given TikTok. I don't think that is very likely because

• 17:06Ed Elson?

  ByteDance has said very firmly, we're not gonna do that. We're not gonna sell TikTok. So that's one thing that could happen. Second thing that could happen is that Trump could have an effect on this. So he has said he's very pro TikTok. Once he's inaugurated, he could come in and he could ask Congress to repeal this law. But again, the likelihood of that is very low because it was a bipartisan bill and many people on Trump's team actually supported that bill. So the idea that they would just reverse it because Trump said reverse

• 17:36Scott Galloway?

  And he supported it initially. Initially, this was his idea.

• 17:39Ed Elson?

  Exactly. So it doesn't really make sense. I think that that's very low likelihood. So the third option, and this is what ByteDance is really riding on at this point, they could appeal to the Supreme Court and they've said that they will, and they could theoretically win that appeal. I think the chances of that happening are also low because one, Supreme Court has to accept to review it, and that's never a guarantee. And two, if you read the opinion from the appeals court, it is very compelling from a national security perspective. And this is a very conservative Supreme Court that actually takes national security very, very seriously. And the freedom of speech argument that came from TikTok, it just wasn't that compelling if you read the opinion. So we can talk about the opinion itself, but

• 18:24Ed Elson?

  I think the big takeaway for me here, as I look at the potential scenarios, it is starting to look less and less likely that TikTok is going to exist in America a year from now. And that just seems totally crazy to me. But the more you study it, the more likely it seems.

• 18:40Scott Galloway?

  I thought that was great on the mechanics. The only thing I don't agree with is your final point that we're going to lose TikTok. And that is, I find, I find, almost always, money wins. And what's interesting is evaluations actually gone up here. Of that 300 billion, probably reasonably 100 billion dollars, the TikTok US is probably worth 100 billion dollars. Money wins. Someone's going to figure out an accommodation, a structure, an investment between the White House and Beijing and ByteDance and their US investors, including Sequoia Capital, General Atlantic Partners, who are very powerful, an accommodation that will

• 19:22Scott Galloway?

  satisfy everyone. And they will figure this out because when there's 100 billion dollars on the line, it's amazing how creative people get.

• 19:32Ed Elson?

  It sounds like what you're saying is they'll figure out a way to sell.

• 19:34Scott Galloway?

  Or they'll come up with some accommodation that the White House, you know, she will say, we'll let you do Miss Universe in Shenzhen after you leave the White House. Just figure this shit out. And he says, okay, Larry Ellison gets to own 20% of it and I can give this as a campaign. I mean, he's going to, they're going to figure something out. 100 billion dollars is

• 19:59Scott Galloway?

  I mean, think about this, the entire our our support that everyone's freaked out about, our support of Ukraine pushing back and taking out a third of Russia's kinetic energy has been like 60 or 80 billion dollars. I mean, 100 billion dollars is so much goddamn money that everyone's going to try and figure this out. And my buddy at at Thunderbird, who's probably the top scholar on China, Doug Guthrie, says, well, actually, China, China doesn't care that easily. And if you believe that the CCP controls this, which I believe, they don't care. They're they're fine. They're not worried. They're, you know, they're not. They can't be bought, whereas Trump can. But anyways, I'm still betting. I'm still betting on money.

• 20:38Ed Elson?

  Let's wrap up here with OpenAI and their new GPT Pro Plan, which costs $200 per month. So I actually tried this, tried this out, used your credit card to buy it.

• 20:50Scott Galloway?

  Oh, wait, that's the gift for your girlfriend, you saucy little minx, isn't it? You got her a subscription. So what is this, the ChatGPT Pro? Hey, honey. Hey, sweetie. You put on a robe, you're getting ready for sexy time, and you have a little box, and you have the login credentials for ChatGPT Pro.

• 21:12Scott Galloway?

  You're a, you're a saucy little minx out at Elson. I know what you got planned. Cat's out of the bag.

• 21:17Ed Elson?

  Well, it's unbelievable.

• 21:18Scott Galloway?

  Cat's out of the bag. I'm sorry, you tried it, and what happened? You found out the best porn size?

• 21:26Ed Elson?

  Yeah, I tried that. And then after that, what I actually did try was I I asked it to explain the pricing strategy behind the $200 GPT Pro Plan. And it responded that there is no $200 ChatGPT Pro Plan, and that I had likely been misled online, or I had been subject to misinformation. So I will say, having just tried it on like a very simple question, and to be fair, this is designed for kind of more scientific and mathematical questions. But I also had a pretty simple question, and it was totally off the mark. So it was not a great first experience. Having said that. I do think this is the beginning of something huge for OpenAI. I'd like to get your reaction.

• 22:09Ed Elson?

  I think the the one stat you need to know about OpenAI right now is that there are more than 200 million users, but less than 5% pay for it. And the reason for that isn't because OpenAI hasn't figured out how to monetize their product. It's because they haven't tried yet. And this is their first foray into trying. This is one of the first steps in the monetization phase. They are experimenting with a tiered pricing strategy. And I think once they figure this out, they're going to make just crazy amounts of money. And just one stat I'd like to point out here. If they can get just 1% of their user base to subscribe to this, to ChatGPT Pro, that will be $5 billion in annual revenue overnight.

• 22:55Ed Elson?

  And that is more than the entire company Snapchat makes in a year. It's more than Twitter makes in a year. It's more than Zoom makes in a year. This is just 1% of the user base signing up for GPT Pro. So I think OpenAI has correctly been identified by the VC community as the next big tech company. It's giving me sort of Facebook in 2008 vibes, Amazon in 2001. It's like, this is the moment where they have all the users, they made it free, they've locked everyone in, and now we're entering the monetization phase. And we're about to find out in actual dollars just how valuable this product really is. So I'm, I'm pretty excited about this moment, to be honest.

• 23:38Scott Galloway?

  I love your analysis and I agree with you. I think this, I love this. I think it's genius. So you send different signals with different positioning, the packaging, the product itself, the reviews. One really powerful signal is pricing. And one of my favorite examples is that when people drink vodka at home, they drink shitty vodka. But if you're at a bar, you don't roll up next to a lovely and say, give me a Smirnoff and Coke. You know, that's just not a, that's not, that doesn't scream mate with me and your kids will survive kind of thing, right? And what the vodka, this guy, this genius figured out was, okay, there are all these sort of premium vodkas. There's Absolut, there's Stolichnaya, there's Sky, they're about 30, 35 bucks. But he said, what sets the tone for vodka brands?

• 24:19Scott Galloway?

  It's people such as yourself and me 20 years ago, 10 years ago, if I'm honest, out at clubs, ordering a bottle of vodka. And so he said, I know what I'm going to do. Instead of pricing, everything was kind of between 30 and 50 bucks a bottle. He said, I'm going to say it's the number one vodka in the world. And he lists some ridiculous vodka competition. And I'm going to charge 70 bucks a bottle, Grey Goose. And everyone started ordering Grey Goose. And I used to do a taste test in my business school class. And I'm like, how many people think they understand the difference between vodkas? And, you know, all the dudes raised their hand. And I do a taste test. Sounds like hazing. I love it. And no one had any fucking idea vodka is such a non-complex alcohol. By the way, it's the alcoholic's alcohol. Can't smell it on your breath.

• 25:03Scott Galloway?

  But double the price and it sends a signal. And this is sending a signal. And I got to think if you're, if we were a profit, if I was still running a consulting or an analytics company, we would have been signing up for these things everywhere. Because if you think it's $200, like, wow, that must, there must be some, there must be a there there, right? And if you're B2B, 200 bucks doesn't mean anything. If you're the partner in a law firm and you haven't figured out the new AI specific legal, you know, LLM, you want, you want an edge, right? And this is saying, we're the leader. We are Grey Goose vodka.

• 25:40Ed Elson?

  We'll be right back after the break for our conversation with Tom Lee. If you're enjoying the show so far, be sure to give Prof G Markets a follow wherever you get your podcasts.

• 25:57Speaker 00

  When you need to build up your team to handle the growing chaos at work, use Indeed sponsored jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a $75 sponsored job credit at indeed.com/podcast. That's indeed.com/podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs.

• 26:57Speaker 02

  This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends, like seeing who can throw some pigskin the farthest or rush the field the fastest. Winner gets an ultra. Because it's not just a superior light beer, it's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit michelobultra.com/superioraccess to enter. Enjoy responsibly. Copyright 2026 Anheuser Busch InBev Michelob Ultra Beer, St. Louis, Missouri.

• 27:32Ed Elson?

  Welcome back. Here's our conversation with Tom Lee, co-founder, managing partner, and head of research at Fundstrat Global Advisors. Tom, thank you very much for joining us on Prof G Markets.

• 27:42Tom Lee?

  Thank you for having me.

• 27:45Ed Elson?

  So you just published your outlook for 2025. And I think on this episode, we just kind of want to go through everything that you're predicting, all the trends that you're observing. And we'll kind of just go through them one by one. So the first is a pretty large prediction. You say that this will be a tale of two years. And then in the first half of the year, you see the S and P hitting 7,000. But then by the year end, you see it falling back to 6,600. So let's just start with a walkthrough on all of the factors behind that prediction.

• 28:18Tom Lee?

  Glad to.

• 28:21Tom Lee?

  As we look forward to 2025, I think that the fundamental visibility is much better than it was at the start of 2024. Meaning we have a Fed that's dovish. And I'd consider that, you know, a Fed put. We have the election behind us, which was really a source of angst in 2024. And the incoming president is very pro equities. So I'd call that a Trump put. That's a tailwind. We know businesses have been cautious for the last two and a half years because of the combination of the pandemic. And the repercussions on the labor force, plus the inflation wave,

• 29:04Tom Lee?

  plus a Fed that was trying to quash inflation. So I think animal spirits return. So these are the tailwinds that are positive for equities in 2025. But the drawback in our view, or the headwinds that emerges, one, there's a lot of promise about potential initiatives in 2025 that I think become, markets have to reckon with it. I think that comes in the second half. There is also a valuation. You know, the stock market is more expensive than it was two years ago. So the markets may be a little less patient if there are any stumbling blocks. And the third risk, you know, in the second half that emerges is that

• 29:46Tom Lee?

  there are things that markets will start to worry about, like deficits and the potential ending of the business cycle in 2026. So I think that those are the things that weigh on markets in the second half.

• 29:56Ed Elson?

  It's almost like there's all this optimism happening, and then it sounds like at some point next year, reality is going to set in. And the thing that you mentioned there is, you know, a lot of optimism around initiatives. What kinds of initiatives are you describing there? I assume these are Trump policies that the market is expecting will boost the economy in some way.

• 30:19Tom Lee?

  Yes, I think some of the initiatives have a lot of positive potential. Others carry with it risk. You know, and the things that carry risk is how the economy will be affected by mass deportations if that happens. The notion of tariffs, you know, tariffs can be an important tool, but tariffs can be very disruptive to a global economy. And then there's also DOGE, the Department of Government Efficiency, that I think if we were in a crisis moment, DOGE could be extremely effective. But at the same time, you know, tackling

• 31:00Tom Lee?

  Government spending is something that I think is extremely difficult and fraught with visibility risk, and I think it poses risks for companies that are big government contractors. So that's what we have to watch. And then the other thing I think that really bears watching is Bitcoin, because I think there is a lot of policy that's being built around Bitcoin finally being more accepted. You know, the sandbox changing for Bitcoin to be something that the US government potentially embraces.

• 31:30Scott Galloway?

  Tom, it's good to see you. I always stop whenever I see you on social, I always stop because I find whatever your thoughts are, I was worth listening to. Speaking of the US market, 15-year-plus bull run, 50% of the world's market cap now represented by US stocks. And if you believe as I do, the markets are cyclical, are we due for a flow out of the US market into international markets?

• 31:56Tom Lee?

  Our research sort of foundation, one of the keys is the idea that history serves as a really important guide. And what I've been struck by is that if I take the US versus the DAX, for instance, any more than 10-year period, the returns, the nominal returns between the DAX and the S and P should be very similar. And the starting point for non-US markets is a much lower valuation. And in 2025, if we're talking about animal spirits coming back because of central bank easing, and that's a cyclical upturn, well, outside the US, there are many cyclical companies,

• 32:40Tom Lee?

  you know, industrials, financials, you know, banks, exporters, that should benefit. And so I'm not opposed to the idea that next year, if the S and P Could essentially feel like it's treading water next year? Could emerging markets do better? I think so. And you know, some things to watch are like China because China is unleashing some stimulus. And if China's leading, I think it does mean the rest of the world does quite well.

• 33:09Scott Galloway?

  And just within our own market, it's been big as beautiful for a while. Do you think again there'll be another reversion to the mean where small and midcaps will have their day in the sun?

• 33:18Tom Lee?

  I'm in the camp that next year it's less about the Mag 7. I think the Mag 7 will produce good earnings growth and so that's going to support valuations not contracting for the Mag 7. But to me, the case for PE expansion and earnings surprise is coming more from the midcaps and the small caps. I mean, for instance, if the Fed remains dovish and the cost of capital actually starts to fall, that's going to benefit many cyclical companies. If there's less regulation and there's M&A, that's less a story about the Mag 7 benefiting, but it's really more about software and a lot of cyclical stocks leading it.

• 34:01Tom Lee?

  Our number one sector pick next year is financials, actually, within the S&P. And then outside the S&P, I think Bitcoin and small caps actually outperform financials.

• 34:11Scott Galloway?

  Why financials?

• 34:12Tom Lee?

  Financials play a pretty important role in the economy. They're essentially the other side of the ledger. So for every actual economic event, the financial system has to provide the accounting and markets mechanisms. And next year, we think that there is a lot of opportunity for the economy to see increased activity. Let's say the PMIs are finally turning up. ISM's been below 50 for almost three years, so it's been the longest industrial recession ever. As that turns up, that means companies become more... Confident and there's more expansion. Well, that's more financial activity.

• 34:56Tom Lee?

  M and A activity has essentially fallen to multi-decade loads because of a tight Fed and concerns about a recession. As businesses have some pent-up demand and there may be some capital markets activity, well, that benefits financials. And when I look at regulation and the idea of less regulatory burden for companies, one of the industries most positively affected is financials. So I think there's a lot of cumulative tailwinds building for the financial sector at a time when the P E multiples there aren't that demanding. I know the stocks did very well this year, but I think they're going to do well next year.

• 35:31Ed Elson?

  I want to just go back to the potential downsides with this new administration. You mentioned tariffs there as one of the biggest risks to the market. I'd love to just get your sense of how that might play out. I mean, Trump has threatened the BRICS and he's threatened Mexico and he's threatened Canada. There's just, this word tariff has been a big word in 2024, but it's not totally clear to me how we can actually model that out in 2024. So how do you see this tariff story playing out?

• 36:04Tom Lee?

  And this is just a supposition, so I'm going to give you like a theoretical. But let's say that we took everything at face value, so these tariffs get implemented. And this triggers retaliatory tariffs from other countries. And then we have both a volumes effect, you know, so the flow of goods globally starts to slow. So you have weaker growth plus the actual realized price of goods goes up because US consumers bear the, you know, bear the cost of that tariff. Because these are the cost of imported goods.

• 36:44Tom Lee?

  So you have optical inflation higher and then a weaker economy, which means joblessness goes up. And then Without question, the stock market would have a lot of pressure because it's hard to make the case that multiples can offset the earnings risk that this presents. So then markets could be correcting for a lot of 2025. If the White House measures its success through how the stock market's performing, that would put enormous pressure on the White House to rethink whether these things are achieving their goal. Because if the White House wants to measure its success through the stock market doing

• 37:26Tom Lee?

  well, I think they'd pretty quickly realize that a tariff war is not popular with Wall Street, even if it's something that, as a policy cornerstone, they want to make as a policy cornerstone. That's just a supposition, because of course, I'm not a White House insider.

• 37:43Ed Elson?

  Yes. On the other side of this, you mentioned there is that people are putting a lot of faith in the Treasury Secretary Scott Besant, who's been nominated, and Commerce Secretary, which would be Howard Lutnick. Is it because those guys are Wall Street guys, and so Wall Street believes they're probably going to be on Wall Street's side?

• 38:02Tom Lee?

  So much of what anyone wants to accomplish in the economy, or even as policy, does require the cooperation of financial markets. And that's because, as you know, the Fed itself is quite afraid of the bond market. You know, the Fed never really wants to make a policy shift that the bond market would be surprised at, because then that could actually run counter to their goals. So that's why when the Fed's cutting, and if yields start rising, the bond market's clearly sending a signal that they don't want too much easing. So there is an equilibrium that someone with Wall Street experience can appreciate. And I think I would counter that by, you know, so many people think policy should be driven by economists.

• 38:46Tom Lee?

  And I think one of the challenges over the last three years that I found as working with institutional investors is that, over the last three years, so many of our institutional investor clients Began a confiar más y más en su economista para darles una idea de cómo se veía el futuro. Y como saben, los economistas raramente pueden decirles lo que probablemente suceda. Pueden decirles los efectos de lo que ya ha pasado. Y creo que una de las cosas que estaría muy preocupado es alguien tratando de tirar política puramente desde el punto de vista de la economía. Así que prefiero tener a alguien con experiencia en los mercados diciéndoles que aquí es donde los mercados podrían protestar

• 39:29Tom Lee?

  y eso es lo que puede mantener la política en marcha.

• 39:32Ed Elson?

  Eso es muy interesante. Alrededor del declive de los doctorados en la administración. Y este, quiero decir, este gabinete ha sido lleno de inversores versus profesores, lo que es una dinámica interesante.

• 39:44Tom Lee?

  Sí, y una medida que, por cierto, y esto es un aside, es que la compensación de los economistas en Wall Street aumentó dramáticamente en los últimos tres años porque todos los fundos de hedge querían saber cómo analizar y interpretar a la Fed y los datos económicos. Pero muchos de estos economistas terminaron proporcionando insights que eran hacia adelante y que demostraron ser muy desastrosos para muchos inversores institucionales.

• 40:11Ed Elson?

  Vamos de nuevo. Y si estás disfrutando del programa hasta ahora, hazle click y dénos un comentario en Profi Markets. Sigue con nosotros.

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• 42:03Scott Galloway?

  We're back with Procy Markets. Your thoughts on Bitcoin, its price escalation? And if and what impact that has on currency reserves? Specifically, the dollar's dominance as the reserve currency? If there is any correlation?

• 42:20Tom Lee?

  I'm a believer in Bitcoin. We've recommended it for our clients for more than eight years because we do think it's an important asset to have exposure to. Our original recommendation was 1%. You know, today, for newer investors, I would recommend two to five. The US government itself is talking about making Bitcoin a strategic reserve asset. And I know there's some pushback for a couple of reasons. One is, you know, Bitcoin is harder and less tangible relative to a hard asset like gold.

• 43:02Tom Lee?

  And the US holdings of gold is actually around $660 billion today. It's actually carried on the balance sheet at 1971 cost. So it's carried at 11 billion, but the US has $660 billion worth of gold. Bitcoin is trading at 10% of the network asset value of gold today. So it's a $2 trillion asset versus gold at 20 trillion. So I would say if the US was just trying to diversify its, you know, currency holdings, you know, they should own 60 billion incrementally of Bitcoin at least. But. I think it's a very interesting question because I've heard a lot of people weigh in that if the US starts to own Bitcoin as a reserve asset, that it would affect dollar dominance.

• 43:46Tom Lee?

  The one thing I would just point out is that in the digital assets world, when we look at crypto pricing, the dollar is by a country mile, a bigger reserve asset. Almost all the stable coins, I would say if you look at stable coin dominance, it's 90% dollar. So in a digital native world, the dollar is more important than the euro, you know, the renminbi, than the yen, you know, the yuan. The only currency people really quote crypto assets in is USD. So I think if that's a proxy, dollar dominance would actually be bigger in a future Bitcoin world.

• 44:24Scott Galloway?

  What are your thoughts on how AI impacts, one, AI stocks or AI-related stocks, and two, which sectors do you think are poised to benefit the most or get hurt the most as AI kind of seeps, if you will, into the regular economy?

• 44:39Tom Lee?

  In simplistic terms, over time, you know, as AI becomes both physically automated and then generative and PhD level, I think it really risks replacing the benefit of human labor. And, you know, there's many books, including The Coming Wave, that really talk about the risks of AI that's unbounded. And one thing I am just supposing that even in a world of like, let's say, financial markets, if it was dominated by AI, in a world where more decisions are made by AI than humans, I think that you're going to end up with a lot of cheating and a lot of spoofing. Because that deception is a very

• 45:24Tom Lee?

  high return on investment activity versus being smart and identifying inflection before anyone else does. And so I think unless there is, I would call ethical bounds on AI, I think that, you know, it'll be easier to rob a bank than to try to make money and to earn capital. So I'm being extreme. So I think that there, you know, over the next few years, I'm not sure, you know, whether or not it's going to ultimately be good for markets. However, if I look at where companies could actually leverage AI the most.

• 46:02Tom Lee?

  I think it's going to be in cases where you don't have productive output by employees. And I think that one easy measure is look at market value of a stock divided by the number of employees, because it's a measure of how human intensive a company is. So if you took the Mag7, the market value per employee is like over $20 million. So those companies already have enormous productivity for each worker because it's either software, technology, or network effects driving the business. But if you take restaurants, many of them trade at $25,000 per employee.

• 46:40Scott Galloway?

  Well, I'd love some examples. Use the word spoof. Do you just think that AI will make criminal activity lower the bar in terms of people's ability to enter and profit from criminality? Or that there'll be specific market, exogenous market risks around spoofing, insider trading, market manipulation? Say more about your fears around AI as it relates to criminal activity.

• 47:02Tom Lee?

  Yeah, and Scott, I guess what I would, like if I were to re, not use the word criminal activity, but what I call non-ethical activity. For instance, as a competitive tool, if AI, if someone said, program, okay, program AI so that my product is something other customers want, that AI system might decide that it has to make two decisions. I can either try to convince people that this is the best product that's out there and it does so many magical things, but then you have to prove all these things. Or maybe it'll decide, I'll just badmouth every other competitor, write fake reviews,

• 47:46Tom Lee?

  bad reviews, claim there's recalls, file complaints. And so that can be...

• 47:54Tom Lee?

  Done at scale using AI agents. And I'm, I'm not saying I know this is going to happen. I'm just sort of observing that it'll probably be easier for a strategy to employ AI is to undermine competitors. And in the financial markets, AI systems might realize, oh, it'll be easier to spoof a CFO into revealing financial results because they think they were getting an email from their auditor, send the numbers. And so now I know what the company's going to report. Or it'll be easier to make a malicious, malicious agent that spies on everybody's computer and then they know what the activity of the company is. So that's how I get ahead instead of trying to use alternative data to figure out what's really happening in a business.

• 48:38Tom Lee?

  I'm, I guess I'm just saying that integrity of data and cybersecurity are going to be very important because in the future, I think AI agents might conclude it's easier to cheat.

• 48:49Ed Elson?

  I just find that such, such an interesting and true observation that it's like AI could be so creative in so many ways. And one of the ways it could be creative is in screwing other people over. I mean, we're, humans are pretty good at screwing people and in various ways, but I would bet that an AI would be even better at it.

• 49:08Tom Lee?

  Yeah. And I, I remember something that Robert Gilze, the head of Coca-Cola once said, because I, when I was at, an undergraduate at Wharton, he came in and spoke to our marketing class. And he said that when a, when a customer has a good experience, they only tell one person. When a customer has a bad experience, they tell 10 people.

• 49:28Ed Elson?

  Yes.

• 49:28Tom Lee?

  So if that's actually the pattern of us, then I would think an AI agent would realize it's easier to spread bad stories about a competitor than to try to make people believe your product is great.

• 49:39Ed Elson?

  Yeah, I hadn't thought of that. I absolutely agree.

• 49:41Tom Lee?

  Oh, sorry, Scott. And this is your domain. So like I, you know, obviously you know, marketing way better than me. So I'm sorry if I.

• 49:48Ed Elson?

  Quickly kiss the ring. Yeah.

• 49:51Ed Elson?

  I just want to move through more of these topics in this 2025 outlook. You mentioned that you think that DOGE, the Department of Government Efficiency, could be too effective, which I thought was an interesting phrasing. What do you mean by too effective? And how do you see that playing out?

• 50:12Tom Lee?

  When we talk to policymakers and we hear it from policymakers, the biggest threat to the US dominance and really the US economy is the growing US deficit. And we're on an unsustainable path. And I think almost everybody in markets agrees. And the numbers are staggering. And there is now a very ambitious effort to try to formulate some sort of plan to contain either the growth of government spending or even cut government spending, which is DOGE. And it's led by Elon Musk and Vivek Ramaswamy.

• 50:53Tom Lee?

  This, to me, harkens back to several chapters of the Truman biography I read by David McCullough, which talks about Truman's work during World War II. And I don't know if it's as widely appreciated, but he formed a committee called the Truman Committee. And the reason it was formed was that during the early days of World War II, the US government couldn't afford to spend on military spending to fund World War II, which was to support the Allies. And so the US was borrowing a lot of money. But what the US also found was that the companies supplying the US were actually either providing inferior parts, overcharging.

• 51:34Tom Lee?

  The Truman Committee was formed, no executive powers. Truman brought in seven senators. And the only real tool they had was public radio, where they could embarrass companies using the public airwaves. And as a result of the Truman Committee, the US saved over as much as $15 billion. There were numerous examples that the Truman Committee found, whether it was defective engine parts leading to planes crashing, overcharging for steel. And he is widely credited for allowing the US to actually fund World War II without going bankrupt. So he was the original DOGE. And he accomplished all this without any real executive powers, but just a public pulpit.

• 52:21Tom Lee?

  Will Doge be able to achieve the same thing? I don't know. I am concerned that, you know, part of this process will be the public airing of examples of government waste, which could be very embarrassing for companies, but it could also become very divisive because it may embarrass companies. It could anger people and I don't want to be alarmist, but look at what happened when someone got very angry at healthcare insurers, you know, unfortunately led to the, you know, the assassination of a CEO. Could something like this happen if Doge exposes a lot of government waste? I don't know. So to me, I think it's a very noble undertaking and I think it hopefully is bipartisan.

• 53:07Tom Lee?

  I don't know how effective it's going to be, but if it's too effective and at least to slow down the government spending, it actually could be contractionary. As far as how I would position investors, those who are large recipients of government payments to me are the ones that investors are going to worry about if a large percentage of their revenues are from the federal government.

• 53:31Ed Elson?

  My concern with the whole Doge thing is that it doesn't feel as much about actually addressing the issue as much as it feels like a sort of metaphorical fuck you to the bureaucratic class in general. Because, you know, so I hope that that's what we can see with this in the next year where we can actually target the actually wasteful spending. But as, you know, as we've discussed, a lot of that is just defense and social security. So it will be very interesting to see how that plays out. We should wrap up here. Scott, do you have any last questions?

• 54:07Scott Galloway?

  I do.

• 54:08Ed Elson?

  I've got one more.

• 54:08Scott Galloway?

  Yeah. Yeah, so Tom, you advise some of the biggest institutional investors in the world. I want you to go down market. A lot of the types of questions we get are along the following lines. Thirty-year-old married, we've managed to scrape together $100,000 and we really don't know what to do with it and the market seems expensive. We don't want to be the ones that got in at the top. You're advising your nephew or a friend who's doing well, saving some money and just starting to invest. What would your asset allocation recommendation be for a young couple with a little bit of money that wants to start investing right now?

• 54:44Tom Lee?

  I think one of the key words that you said, Scott, was young. I think when someone's young, they have time on their side. A young person, let's say someone in their 30s, has 60 years on their investment horizon. And that is a huge, huge advantage because most people who invest only think one month ahead or even one day ahead. So there's a couple of things I'd offer advice as. Number one is, over the long term, the ups and downs of the market matter less because everything that has growth grows in value.

• 55:25Tom Lee?

  So I think equity should always be a big part of someone's allocation, but that also should include real estate because land has a good history and of course, owning Bitcoin or gold or both. The second thing I would just note is the importance of dollar-cost averaging. I think many people feel anxious at the top that they have to put all their chips into the market. They don't. They should have a program to invest steadily. And so we always advise dollar-cost averaging. So whether that means you make a commitment to buy every month or you buy every time

• 56:06Tom Lee?

  there's a dip, I'd really recommend people dollar-cost average. And the third piece of advice I'd give people is that they need to be really patient and

• 56:20Tom Lee?

  As much as someone thinks buying at the top is dangerous, JP Morgan's private bank has a very famous chart that shows if you bought the S and P only at all time highs, you actually had better returns than dollar cost averaging in general, meaning it's actually okay to buy at all time highs because you know you're in a bull market. Of course, there'll be one day when you actually bought and it literally is the high. But if you have 20 years, you never had a negative rolling 10 year period. So as long as you own something for 10 years, you don't have to worry about buying at the highs.

• 57:00Ed Elson?

  I love that. I feel like my fear of buying at all time highs, it's mainly a fear of being stupid. But maybe being fearful of stupid is in itself stupid. We've talked a lot about 2025 and what you think is going to happen in the year ahead. I'd just like to end here with a reflection on 2024. Is there anything that happened this year, Tom, that has fundamentally changed your view of the world? It could be in markets or in politics. It could be in anything, but something that really changed your perspective and that you are carrying with you into 2025?

• 57:39Tom Lee?

  I'm probably going to limit it more to my perceptions of markets. But I think 2024 is a year that really has proven that companies have been battle tested. We first had a pandemic that shut the global economy down in 2020, and very few companies went bankrupt. And then in 2021, we had an inflation surge that historically would catch many businesses by surprise. But businesses saw this happening and they endured it.

• 58:14Tom Lee?

  And then in 2022, the Fed embarked on the fastest tightening cycle in history to put a heart attack on the economy and very few businesses failed. So we've put corporate America through three stress tests that you normally might see one of these in 50 years. We saw three of three things happen in three consecutive years and businesses are doing well. So I think in general, there's a reason the S and P has done as well as it has because it's proven to be an exceptionally strong index made of very, very strong companies.

• 58:52Ed Elson?

  Tom Lee is the co-founder, managing partner and head of research at Fundstrat Global Advisors, a leading independent research firm. He has 25 years of experience in equity research and has been top ranked by Institutional Investor every year since 1998. Prior to co-founding Fundstrat, he served most recently as JP Morgan's Chief Equity Strategist from 2007 to 2014. Tom, this was a pleasure and fascinating. Thank you very much for joining us. Good to see you, Tom.

• 59:19Tom Lee?

  Yeah, thank you. Good to see you, Scott. Thanks, Ed.

• 59:21Ed Elson?

  This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weis. Mia Silverio is our research lead. Jessica Lang is our research associate. Drew Burrows is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.