U.S. stocks appear headed for a bear market and economic signs point to rising recession risk, economist and investment advisor A. Gary Shilling suggested Monday.
"A U.S., and indeed a global recession, was probably already in the cards before being augmented by Trump’s tariff gyrations," he wrote in his monthly Insight newsletter for May. "As the recession unfolds, equity price weakness will no doubt persist" while safe havens like U.S. Treasurys and the dollar "will probably benefit."
Recession expectations have leapt recently, sparked by the U.S. tariff policies that caused market panic, which prompted President Donald Trump to soften his trade-war stance and back down on threats to fire Federal Reserve Chair Jerome Powell, Shilling said.
"We have been pointing out for some time that there was a strong possibility of a recession and a bear market in stocks and everything else that goes along with it," he said, citing various economic indicators. The U.S. labor market, for example, is "flashing recessionary signals," he wrote.
As for equities, Shilling noted the S&P 600 index, which tracks small-cap U.S. stocks, is down 25% from its late 2024 high.
"We’re not in a widespread bear market yet with 20%-plus declines but we think they’re headed that way," he wrote.
Shilling recommends that investors hold extra cash "as a bear market in equities unfolds," long the U.S. dollar and safe-haven Treasury bonds, and "avoid vastly-overpriced stocks, especially expensive equities such as the Magnificent Seven, AI, SPACs, Nvidia and crypto securities."
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