Summary
⚈ Markets are underpricing economic risks, despite short-term optimism from trade deals, and may face a major downturn soon.
⚈ Other experts predict a severe recession by 2025, with warnings of potential systemic financial crises similar to the 1930s.
David Rosenberg, one of Wall Street’s influential voices, has issued a warning about the next stage of the U.S. economy, urging investors to act swiftly.
The chief economist and strategist at Rosenberg Research based his caution on an analysis of the latest Federal Reserve Beige Book, concluding that around 60% of the U.S. economy is either in recession or dangerously close to it, he said in an X post on April 25.
Notably, the Beige Book, a report compiled from the Federal Reserve’s 12 regional banks, provides a real-time snapshot of business conditions across the country.
Unlike the growth scares from 2022 to 2023, when pandemic savings propped up spending, Rosenberg noted that the current environment shows clear signs of a consumer-driven downturn, with weakening sales and labor markets signaling a major slowdown.
We analyzed the Fed’s Beige Book and concluded that around 60% of the U.S. economy is either already in recession or on a knife’s edge. <…> As we all focus on the alleged trade “deals”, the economy’s fate has been sealed. <…> Use rallies to cleanse the portfolio of risk and cyclical exposure,” said Rosenberg.
While financial markets have been buoyed by optimism around recent trade agreements, Rosenberg argued that broader economic fundamentals tell a much more troubling story.
Underpricing risks
He believes that markets are significantly underpricing the risks, with stock prices and credit spreads reflecting only a fraction of the potential damage. To this end, Rosenberg advised investors to use market rallies to reduce exposure to high-risk and cyclical assets.
While Rosenberg believes the recession is already here, another economist, Henrik Zeberg, said the economy is not yet in a downturn despite growing market risks. He noted how, just weeks ago, sentiment had shifted to extreme bearishness, highlighting how quickly narratives can change.
Zeberg warned that markets are now forming a “blowoff top,” a sharp rally that could precede a major downturn. The expert maintained that a severe recession, potentially the worst since the 1930s, is still on the horizon.
Indeed, calls for a possible recession have recently accelerated, triggered by trade tensions from tariffs. Tension eased after President Donald Trump claimed to have had a conversation with his Chinese counterpart, which triggered a positive reaction in equities and cryptocurrencies.
Recession timelines 2025
Notably, as reported by Finbold, most calls are aligning with the possibility of a downturn in 2025, with CEOs setting timelines for the next six months. At the same time, JPMorgan CEO Jamie Dimon warned that rising U.S.-China trade tensions could pressure S&P 500 earnings and make a recession likely.
Similarly, economist Steve Hanke estimated a 90% chance of a 2025 recession, while Bridgewater founder Ray Dalio warned of even deeper economic troubles beyond a typical downturn.
Interestingly, veteran trader Peter Brandt said that if the financial system were to experience a meltdown similar to the one in the 1930s, such a reset would be necessary.
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