President Donald Trump’s latest tariff tweaks appear to have helped stabilize U.S. financial markets — at least, for now.
But Daniel von Ahlen, a senior macro strategist at GlobalData TS Lombard, fears investors might be underestimating the risk of a recession. If he turns out to be right, this could lead to more pain later this year, especially for stocks.
In a report shared with MarketWatch on Wednesday, Von Ahlen highlighted a few concerning signs culled from recent economic reports and headlines. Firings of federal-government workers will test the capacity of the labor market just as the hiring rate has weakened.
Also, Trump’s tariffs should boost prices of many goods, denting consumers’ purchasing power when income growth has slowed.
Retaliatory tariffs from China could hurt U.S. exporters. A crackdown on immigration could shrink the labor force, and spending cuts necessary to extend Trump’s tax cuts from his first term could also rob the U.S. economy of a valuable source of stimulus at a particularly inopportune moment.
“Collectively, these factors could be powerful enough to push the U.S. economy into recession, especially as rapidly cooling real personal income growth leaves little room for error,” von Ahlen wrote in the report.
To add some heft to his argument, the macro strategist measured the rate of economic growth currently priced into U.S. markets.
His model showed that investors have yet to abandon their expectations for strong economic growth, even as the consensus growth rate forecast by Wall Street economists has fallen considerably.
Another possible negative for stocks: Wall Street analysts were still too sanguine about the prospects for corporate earnings growth in 2025. While analysts have started to cut their forecasts, the bottom-up consensus was still calling for 8.9% growth in 2025.
Typically, earnings see little or no growth in a recession.
Furthermore, weakness in the stock market could also help weigh on consumer spending, as stocks have contributed a growing share to average household wealth in recent years.
Von Ahlen isn’t alone in worrying that investors might be blindsided by what comes next. Michael Brown, a senior research strategist at Pepperstone, also expressed some concerns in commentary recently shared with MarketWatch.
