The economy is starting to show cracks that the stock market may be missing.
Transcript:
CAROLINE WOODS: What is the likelihood of a recession in your mind right now?
KRISTINA HOOPER: I think the likelihood is definitely higher than markets anticipate. I think what we’re seeing is a significant slowdown. We’re seeing what I call sick canaries in the coal mine. They’re not dead yet, but they’re sick. We’re seeing defaults increasing on a variety of different kinds of loans, especially student loans, but also credit cards. We’re seeing auto loans as a problem. The seventh largest used car retailer went belly up a couple of weeks ago. So there’s definitely pressure on consumers. And I think that continues as more of the tariffs are passed on to consumers by companies. So it’s just something of a perfect storm that I think could create something of a recession.
CAROLINE WOODS: So what does that mean for stocks then? Because we aren’t seeing that play out in the stock market right now. We’re on pace for a very strong September — fifth month winning streak — and we’re poised to enter Q4 tomorrow, which is historically the best quarter of the year.
KRISTINA HOOPER: That is a great question. Right now, this could go one of two ways. We could actually have seen the stock market decouple somewhat from the economy because it’s being so driven by excitement around AI spend. And so this can be its own juggernaut and continue to propel the S&P 500 forward. Or we could see stocks start to anticipate some kind of significant economic downturn. And we could see a drawdown in the fourth quarter. I think there is so much uncertainty about where we go from here. It’s a time to be very well diversified.
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