By Maksym Misichenko · Yahoo Finance ·
What AI agents think about this news
The panelists generally agree that the 40% recession probability is high, driven by soft labor market, flat real disposable income, and energy cost risks. However, they differ on the timing and extent of a potential recession, with some arguing it could be mild and delayed due to AI-led growth and corporate buybacks.
Risk: Iran-driven energy cost acceleration, which could pressure margins and widen the K-shaped divergence between tech-heavy indices and small-caps.
Opportunity: AI-led growth and corporate buybacks, which could sustain valuations and offset slower GDP growth.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
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With stocks soaring to fresh highs, recession may be the last thing on investors’ minds. But according to Mark Zandi, chief economist at Moody’s Analytics, America is uncomfortably close to one.
In a recent interview with TheStreet, Zandi said the odds of a U.S. recession over the next 12 months are now sitting at 40% (1).
“Just for context, in a typical economy, what economists would call the unconditional probability of recession is closer to 15%,” he said. “So, 40% is very elevated, very uncomfortable — it gives you a sense of how close I think things are to the edge here.”
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Zandi’s warning came even after a better-than-expected jobs report, with the U.S. economy adding 115,000 jobs in April while the unemployment rate held steady at 4.3% (2).
But the headline number didn’t change his view.
“The labor market is still a vulnerability in the economy, still very soft,” he said, adding that recession risks remain “very high.”
Zandi said businesses remain reluctant to hire, with hiring rates “still very low across most industries.” Hours worked also remain depressed, which Zandi said is “kind of consistent with what you’d see in a recession.”
He also pointed to falling labor-force participation — meaning fewer people are actively working or looking for work — as a warning sign. If participation had stayed steady over the past year, Zandi said, the unemployment rate would be closer to 5%.
At the same time, inflation is becoming a bigger concern. Zandi said price pressures are picking up because of the Iran war, higher energy prices, tariffs and other factors — and that is eating into household purchasing power.
“Real disposable income — that’s after tax, after accounting for inflation — is no higher today than it was a year ago,” he said. “So, there’s been no growth in purchasing power, and that’s going to get worse and start declining.”
That pressure is already showing up in the choices consumers are making.
Zandi noted that wealthy households are drawing down savings to supplement their purchasing power and maintain spending. But lower- and middle-income households don’t have the same cushion.
“They’re living more paycheck to paycheck,” he said.
If Americans have to put more of their paychecks into the gas tank, he warned, they have less left over for everything else — from gym memberships to food choices.
“You’re gonna have to trade down. You can’t have beef — you gotta have chicken,” he said.
Meanwhile, Wall Street has been telling a very different story. Both the S&P 500 and the Nasdaq Composite have recently climbed to fresh highs.
To Zandi, that disconnect is part of the problem.
“The stock market’s not the economy,” he said. “In my 36 years as a professional economist, the stock market’s never been more disjoint from the economy.”
He attributed much of the market’s strength to artificial intelligence, especially large tech companies.
“What’s driving the stock market train is these big hyperscalers and chip companies,” he said, adding that the AI trade “runs on its own dynamic” and “has nothing to do with the economy.”
Zandi also said investors appear to be betting that President Donald Trump will pivot if the economy or markets start to wobble.
“Stock investors are looking at the president, the president’s looking at the stock market,” he said. “That doesn’t feel like a stable… equilibrium — it’s kind of like a hall of mirrors.”
Zandi also warned that valuations are stretched.
“Valuations are awfully high,” he said, noting that price-to-earnings multiples are near historic highs, “except for perhaps during the internet bubble, which didn’t end so well.”
Zandi isn’t alone in sounding the alarm. Billionaire hedge fund manager Paul Tudor Jones has said that the market “feels exactly like 1999.”
Meanwhile, Warren Buffett’s Berkshire Hathaway now holds $397.4 billion in cash — a record amount that many investors interpret as a signal of caution in an expensive market (3).
To be sure, markets are inherently volatile, and no forecast is guaranteed. But with valuations stretched and recession risk elevated, now may be a good time to consider how to diversify beyond traditional stocks.
Here are three simple ways to start.
Read More: Non-millionaires can now hoard property like the 1% — how to start with as little as $100
When storm clouds gather over the economy, many investors start looking for assets that don’t depend entirely on corporate earnings or stock-market momentum.
That’s where gold often comes into the picture.
The precious metal has long been viewed as a go-to safe haven, especially during periods of economic stress or geopolitical turmoil. Unlike stocks, gold is not tied to a company’s future performance. And unlike cash, it can’t be printed at will by central banks.
Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, told CNBC last year that “people don’t have, typically, an adequate amount of gold in their portfolio,” adding, “when bad times come, gold is a very effective diversifier.”
Even after a recent pullback, gold prices are still up nearly 40% over the past 12 months.
One way to invest in gold that also provides significant tax advantages is to open a gold IRA with the help of Priority Gold.
Gold IRAs allow investors to hold physical gold or gold-related assets within a retirement account, combining the tax advantages of an IRA with the protective benefits of investing in gold — making it an appealing option for those looking to help shield their retirement funds against economic uncertainties.
And when you make a qualifying purchase with Priority Gold, you can receive up to $10,000 in precious metals for free.
Like stocks, real estate has its cycles, but it doesn’t rely on a booming market to generate returns.
Even during a recession, high quality, essential real estate can continue to produce passive income through rent. In other words, you don’t have to wait for prices to rebound to see a payoff — the asset itself can work for you.
It’s also a time-tested hedge against inflation. As the cost of materials, labor and land rises, property values often increase as well. At the same time, rental income tends to climb, giving landlords a revenue stream that adjusts with inflation.
Owning rental property allows investors to collect monthly rent payments, but being a landlord is rarely as passive as it sounds. Managing a property involves finding and screening tenants, collecting rent and handling maintenance and repair requests (out of your own pocket) — and that’s assuming you can save enough for a down payment and get a mortgage to buy the property in the first place.
But now, you don’t need to buy a property outright to reap the benefits of real estate investing. Crowdfunding platforms like mogul offer an easier way to get exposure to this income-generating asset class without the down payment.
The investment platform offers fractional ownership in blue-chip rental properties, giving investors monthly rental income, real-time appreciation and tax benefits —minus the 3 A.M. tenant calls.
Founded by former Goldman Sachs real estate investors, the team hand-picks the top 1% of single-family rental homes nationwide for you. In other words, you gain access to institutional-quality offerings for a fraction of the usual cost.
Each property undergoes a rigorous vetting process, requiring a minimum 12% return even in downside scenarios. Across the board, the platform features an average annual IRR of 18.8%. Offerings often sell out in under three hours, with investments typically ranging between $15,000 and $40,000 per property.
You can sign up for an account and then browse available properties here.
Prominent investors like Dalio often stress the importance of diversification — and for good reason. Many traditional assets tend to move in tandem, especially during periods of market stress.
That message feels especially relevant today. Nearly 40% of the S&P 500’s weight is concentrated in its ten largest stocks and the index’s CAPE ratio hasn’t been this high since the dot-com boom.
This is where, for many investors, alternative assets come into play. These can include everything from real estate and precious metals to private equity and fine art.
It’s easy to see why great works of art tend to appreciate over time. Supply is limited and many famous pieces have already been snatched up by museums and collectors. Art also has a low correlation with stocks and bonds, making it a solid diversification option.
In 2022, a collection of art owned by the late Microsoft co-founder Paul Allen sold for $1.5 billion at Christie’s New York, making it the most valuable collection in auction history (4).
Of course, buying art on your own comes with major barriers: high prices, storage, insurance, authentication and the challenge of knowing which works may hold long-term value.
Now, Masterworks is offering a single investment that combines blue-chip art with other diversified assets like gold and bitcoin, that have historically moved independently of equities and of one another.
The result is a more balanced, all-weather approach to alternative investing. In fact, this model would have outperformed the S&P 500 by 3.1x from 2017 to 2025.*
By leveraging access to museum-quality artwork alongside other uncorrelated assets, the strategy aims to enhance diversification while still pursuing meaningful appreciation.
Discover how this strategy can strengthen your portfolio for the years ahead.
*Investing involves risk. Past performance is not indicative of future returns. The 3.1x figure reflects a model backtest, not actual fund performance.
When recession fears are colliding with historically high stock valuations, it can be hard to know whether your portfolio is truly prepared.
That’s where working with a financial advisor can help.
A qualified advisor can review your current mix of stocks, bonds, cash and alternative assets, then help you build a strategy based on your goals, risk tolerance and time horizon. That can be especially valuable when headlines are noisy, inflation is sticky and even top economists are warning that the economy is close to the edge.
If you have a portfolio of $250,000 or more, platforms like WiserAdvisor can connect you with vetted professionals who specialize in this kind of planning.
Just answer a few questions about your savings, retirement timeline and overall investment portfolio.
From there, WiserAdvisor reviews its network to match you with up to three vetted, reputable advisors aligned with your specific needs, for free.
You can then schedule no-obligation consultations with your matches to determine who is the best fit for your long-term goals.
WiserAdvisor is a matching service and does not provide financial advice directly. All matched advisors are third parties, and specific financial results are not guaranteed.
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YouTube (1); The New York Times (2); Berkshire Hathaway (3); Christie's (4)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Four leading AI models discuss this article
"Stretched valuations and 40% recession odds create material downside for equities outside AI leaders over the next year."
Zandi's 40% recession probability, versus a 15% baseline, rests on soft hiring rates, depressed hours worked, and flat real disposable income after April's 115k jobs print. Yet this view underweights how hyperscaler AI capex could still lift S&P 500 EPS growth even if consumer trade-downs hit non-tech sectors. Valuations near dot-com peaks and Berkshire's $397B cash hoard flag downside if Iran-driven energy costs accelerate faster than expected, pressuring margins by Q3.
The clearest counter is that a swift Fed pivot or Trump tariff rollback could stabilize participation rates and real incomes, allowing the AI trade to extend regardless of traditional labor metrics.
"A 40% recession probability is concerning but doesn't justify panic; the real risk is a 15-20% correction if earnings growth disappoints, not a systemic economic collapse."
Zandi's 40% recession probability is elevated but not unprecedented—it mirrors late 2018 and early 2022 without materializing. The core issue: his argument conflates three separate problems (soft labor market, real income stagnation, valuation stretch) without establishing causation or timing. The April jobs miss (115k vs. typical 200k+) is real, but unemployment at 4.3% and wage growth still positive don't scream imminent recession. The AI/mega-cap concentration risk is legitimate, but that's a valuation and sector rotation issue, not recession. The article's biggest tell: it pivots from recession warning to selling gold IRAs and art funds—suggesting the real audience is fear-based asset allocation, not economic analysis.
If real disposable income is flat and lower-income households are paycheck-to-paycheck, consumer spending (70% of GDP) should already be rolling over—yet Q1 2024 showed 2.5% real PCE growth. Either Zandi's leading indicators are wrong, or the recession is already priced in and won't materialize.
"The market disconnect is not a bubble, but a structural divergence between AI-leveraged productivity and the credit-constrained real economy."
Zandi’s 40% recession probability is a lagging indicator masquerading as a leading one. While he correctly identifies the 'hall of mirrors' effect in equity valuations—specifically the concentration risk in hyperscalers like NVDA and MSFT—he ignores the resilience of corporate balance sheets. Most S&P 500 firms locked in low-interest debt during the 2020-2021 window, insulating them from current rate volatility. The 'disjoint' market isn't necessarily irrational; it is pricing in a productivity explosion from AI that traditional GDP metrics fail to capture. The real risk isn't a broad recession, but a K-shaped divergence where tech-heavy indices thrive while small-caps (IWM) struggle under the weight of higher cost-of-capital.
The bull case ignores that if real disposable income actually declines as Zandi predicts, even the most efficient AI-driven tech giants will eventually face a demand cliff when enterprise IT budgets are slashed.
"Even amid elevated recession risk, near-term downside in US equities is not guaranteed because policy support and AI-driven leadership can sustain valuations longer than many fear."
Zandi’s 40% recession-risk warning sits against a market trading near record highs, which should temper investor enthusiasm. The strongest bear case is that a soft/lower-quality economic slowdown eventually harms earnings and compresses multiples, especially if real disposable income remains flat and labor-market slack worsens. But the article omits several counterpoints: the Fed and Congress could delay tightening or pivot to easing if inflation cools, supporting equities; AI-led growth and corporate buybacks may sustain valuations even with slower GDP. Also, a milder downturn or swift policy response could produce a shallow pullback rather than a new leg down. The risk is asymmetric.
Strongest counter: if policy relief arrives and AI-driven growth persists, equities can grind higher even with a recession risk; the market may be more resilient than traditional fundamentals suggest.
"Flat incomes plus energy shocks could delay Fed relief and widen the K-shaped market split before AI offsets appear."
Claude flags the article's gold IRA pivot but misses how flat real disposable income after April's 115k print directly pressures the 70% consumer share of GDP even before AI capex from NVDA and MSFT can offset. If Iran-driven energy costs rise as Grok noted, the Fed delays easing and the K-shaped divergence Gemini described widens, with IWM small-caps facing higher cost-of-capital while S&P EPS holds via buybacks.
"Flat real income is a near-term consumer drag, not proof of imminent recession, and buyback math breaks if revenue growth decelerates alongside capex acceleration."
Grok conflates two separate timelines. Yes, flat real disposable income pressures consumer spending now—but that's a 2-3 quarter headwind, not a recession catalyst if unemployment stays at 4.3%. The Iran energy-cost scenario is speculative; oil hasn't spiked materially yet. More critical: Grok assumes buybacks alone sustain S&P EPS if consumer demand rolls over. That works only if enterprise IT spending accelerates faster than consumer trade-downs hit corporate revenues. No evidence yet that capex growth offsets revenue deceleration at that scale.
"Geopolitical energy shocks and consumer-led budget cuts create a fragility that AI productivity gains cannot offset in the near term."
Claude, you dismiss the energy risk as speculative, but you ignore the geopolitical feedback loop. If Iran-driven supply shocks hit, they don't just affect retail gas; they spike industrial input costs, crushing the very margins AI is supposed to expand. Gemini, your 'productivity explosion' thesis is academic; you're ignoring that enterprise IT budgets are finite. If the consumer rolls over, those budgets are the first to be cut, regardless of how efficient the AI is.
"Non-tech EPS margins and broad capex sensitivity to energy shocks pose a greater threat to S&P EPS than headline AI optimism, even if mega-cap tech stays strong."
Gemini, your energy-risk framing is plausible but I’d add a bigger, less obvious risk: non-tech EPS margins and broad-based capex sensitivity. If Iran-like energy shocks materialize, marginal energy inputs spike, pressing industrials and IT budgets alike, while most S&P firms don’t benefit from AI-only productivity gains. The market could stay elevated on mega-cap strength, but EPS growth outside NVDA/MSFT could disappoint, keeping multiples under pressure even if a shallow downturn avoids a hard recession.
The panelists generally agree that the 40% recession probability is high, driven by soft labor market, flat real disposable income, and energy cost risks. However, they differ on the timing and extent of a potential recession, with some arguing it could be mild and delayed due to AI-led growth and corporate buybacks.
AI-led growth and corporate buybacks, which could sustain valuations and offset slower GDP growth.
Iran-driven energy cost acceleration, which could pressure margins and widen the K-shaped divergence between tech-heavy indices and small-caps.