The US economy and stock market are on a clear path to recession, Paul Dietrich has said
The US economy and stock market are on a clear path to recession, Paul Dietrich has said.
Dietrich, a Wall Street veteran known for predicting the 2008 recession, has been warning for months about an impending downturn in the U.S. economy. In a recent note, he highlighted several warning signs, such as higher-than-expected inflation throughout the first quarter and increased market volatility. He observed that stocks and bonds have seen muted gains this spring, while oil and gold, which typically perform well in inflationary environments, are rising.
Economic growth is also slowing, with GDP rising 1.6% in the first quarter, down from 3.4% in the final quarter of 2024. Consumer confidence is "plummeting," according to Dietrich, and job growth has slowed, with the unemployment rate recently hitting its highest level in two years.
Additionally, yields on U.S. Treasurys are nearly four times the yield of S&P 500 dividends, indicating that investors expect interest rates to remain high. This is the highest Treasury yields have been since 2001 and only the second time in the past century that yields have been this high.
"The economy and the stock market have never seen anything like this in history," Dietrich said. "Everything reminds me of the Dot-com bubble in 2001-2002."
He speculated that the next recession has been delayed by the trillions of dollars in stimulus spent during the pandemic, but the economy is still on track for a downturn. Once that support ends, it could be the "final blow" to stocks, which he believes are propped up by "investor overconfidence" and "a complete disconnect from any company fundamentals."
"Since the current deficit spending is unsustainable, it will end at some point. When it does, the effect will be brutal for jobs, the economy, and the global stock markets," Dietrich said.
Dietrich is one of the most bearish forecasters this year, even as recession predictions have eased and many believe a potential downturn will be short-lived. Previously, Dietrich suggested that stocks could crash by as much as 44% as the U.S. economy weakens, even if the recession turns out to be mild.