According to Paul Dietrich, chief investment strategist at B. Riley Wealth Management, the US economy is showing multiple warning signs that it may be heading towards a recession. As a Wall Street veteran who predicted the 2008 recession, Dietrich has been cautioning for months about another economic downturn approaching the US. He pointed out various indicators such as rising inflation, increased market volatility, and modest gains in stocks and bonds. Additionally, oil and gold are on the rise, which typically occurs during inflationary environments.
Furthermore, economic growth has slowed down significantly, with GDP rising only 1.6% in the first quarter of this year compared to 3.4% in the last quarter of 2024. Consumer confidence is declining, job growth is slowing down, and the unemployment rate recently reached its highest level in two years. US Treasury yields are nearly four times S&P 500 dividends, indicating that investors anticipate higher interest rates for an extended period. Dietrich compared the current situation to the Dot-com bubble in 2001-2002 and mentioned that while pandemic stimulus spending may have postponed the next recession temporarily, it could still occur once it ends.
Dietrich believes that if stimulus spending ends without a clear replacement plan in place, it could cause a significant negative impact on jobs, the economy, and global stock markets. He predicts that when deficit spending becomes unsustainable due to high interest rates and slow economic growth rates, it will have substantial consequences for the economy.
Despite some voices predicting a short-lived recession of around six months or so before recovering again quickly afterward, Dietrich remains one of the most bearish forecasters out there. He suggests that stocks could crash up to 44% if we see a mild recession or even up to 75% if we experience a severe one.
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