LIVE MARKETS-Fears over a recession overblown, but stocks drop will dent consumer spending

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FEARS OVER A RECESSION OVERBLOWN, BUT STOCKS DROP WILL DENT CONSUMER SPENDING

Fears over a recession may be overblown even though weakness in overvalued stock markets is likely to dent consumer spending, according to Steven Ricchiuto, US Chief Economist at Mizuho Securities USA.

“Since 2022, several unfounded credit-crunch recession forecasts have been advanced, each of which failed to materialize, and we are now in another such episode,” Ricchiuto said. He cited the 2022 Treasury yield curve inversion, the regional banking crisis of 2023, concerns about a collapse in commercial real estate and more recently DOGE-related job cuts.

Now, tariff-related uncertainty is seen as potentially leading to an economic downturn.

“Although we could see this development leading to a growth recession, the markets are completely ignoring the deregulation taking place in the background and the prospect of a large tax cut which we expect before Labor Day,” Ricchiuto said.

That’s not to say that its all clear for stock investors, after equity markets were driven to record highs by a wave of “AI mania.” This “is another example of how hype dominated over reality and how investors who ignore the fundamentals do so at their peril,” Ricchiuto said.

Falling stocks “has a far greater adverse effect on high-income households that tend to have a lower marginal propensity to consume than it does on the majority of consumers. As such, we expect consumer spending will slow during the first two quarters of 2025 relative to the robust contribution to household spending made to second half of 2024 but defiantly not contract as the growth bears are projecting,” Ricchiuto said.

(Karen Brettell)

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