To The Moon

$S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $NASDAQ 100(NDX)$ $Invesco QQQ(QQQ)$ $DJIA(.DJI)$

Coming into 2025, it was hard to find any sort of bearishness in market sentiment.

Whether it was regulations or crypto or interest rates or simply politics, business owners and investors found every reason they could to be bullish.

We’re now two months into the year and the consumer has a different view of the world. And remember, it’s consumers that matter in the economy, not talking heads on TV.

A report out this week from the Department of Commerce showed spending declined in January despite higher wages. Is this a blip in the data? Saving after over-spending for Christmas? Or fear about a world with tariffs (which we’ve seen in other survey data)? We don’t know yet what the longer term trends hold, but this is worth watching.

Within that high level number was more detailed data on where spending is down. Big purchases like vehicles and furniture are down while housing and utilities are up big.

I think this is an interesting trend when we’re potentially heading for tariffs on imports from Mexico, Canada, and China as early as Tuesday.

Tariffs aren’t necessarily bad for the U.S. market long-term because it could shift more manufacturing and jobs back to the U.S., but the short-term impact will be higher prices for a lot of goods we buy every day and potentially less volume for most companies. Ironically, vehicles will likely see the most acute impact, so buying one now may be a prudent financial move rather than waiting…

All of this data is feeding into a recession watch measure called the Atlanta Fed’s GDPNow real GDP estimate. You can see below that estimates were for modest GDP growth in Q1 2025 until just this week. Now, the estimate is for negative growth. 2 quarters of negative growth (a shrinking economy) = a recession.

I don’t bring this up to strike fear in investors. I’ll buy stocks this week just like I do at the beginning of each month.

However, I do think the apparent change in consumer behavior early in 2025 is notable. If it continues, a recession may be more likely than previously thought. A prudent move may be to not buy highly priced stocks that are priced for perfection because this doesn’t look like a perfect economy.

Recessions don’t start because everyone predicts one.

Recessions are like dominoes.

Consumers spend a little less on cars.

So, automakers reduce orders for steel and cut shifts back.

So, those consumers slow spending on new shoes and clothing.

Government layoffs cause less demand for cars and discretionary goods.

So, some building slows, which hits 15% of the economy.

And eventually something we didn’t expect to break…breaks.

A recession is definitely possible in 2025. And it may be more likely than not at this point.

When there’s as much change in the economy and consumer sentiment as we see today, something is bound to break. And that may unveil risks we don’t realize exist today.