Despite a growth in the third quarter, the U.S. economy may be heading for tough times as numerous challenges loom on the horizon.
Americans are facing a potential economic crisis, according to market strategist Chris Watling. Despite strong retail sales, Watling argues that U.S. households are “walking towards a cliff” and are running out of cash. He points out that excess savings have been depleted, particularly in the lower income quartiles. While retail sales and positive updates from major retailers may suggest a robust economy, Watling believes that these sales have been buoyed by dwindling household savings. He is not alone in this observation, as Citigroup CEO Jane Fraser and Bank of America CEO Brian Moynihan have also expressed concerns about consumer spending.
Watling highlights several economic indicators that hint at underlying troubles. Car repayment delinquency rates for risky borrowers have reached a three-decade high, and the labor market conditions indicators have shown a slowdown. Watling states that the labor market is under pressure, with many indicators suggesting softness and fraying at the edges.
Continued pressure on consumers and the labor market could potentially lead to a recession in the U.S. economy. Bill Gross, known as the “Bond King,” has also predicted a recession in the fourth quarter and advised investors to return to the bond market. Watling further predicts trouble for the U.S. stock market, which he believes is massively overpriced.
While there may be a short-term bounce in the stock market, Watling advises being underweight in equities for the long term. He argues that the U.S. equity market, particularly the tech sector, is overvalued. In conclusion, Watling believes that the U.S. is in for tough times ahead.