Recession Odds Rise: Tariffs Have Put a ‘Monkey Wrench’ in a Soft Landing, Strategist Says

Michael Dardo, Chief Economist, provided a sobering outlook on the state of the U.S. economy during a recent market analysis. Citing erratic market behaviour and unpredictable policy shifts, Dardo emphasised the rising likelihood of a recession in 2025. He placed the odds at 50%, a dramatic increase from normal forecasts. Dardo described the market’s current state as being in a “whipsawed” condition. This is where rapid price movements fuel investor anxiety and complicate decision-making.

In this high-volatility environment, he recommends risk management and diversification as crucial strategies for safeguarding portfolios. Among sectors under pressure, airlines, technology, and energy were noted as potentially undervalued areas for risk-tolerant investors. Nevertheless, Dardo cautioned against expecting quick rebounds. On currency dynamics, he pointed to the declining U.S. dollar, noting it doesn’t currently signal inflation but rather underscores looming recessionary pressures. Meanwhile, high-yield debt spreads continue to widen, reinforcing fears about future economic growth.

Dardo concluded by underscoring the intricate interplay of global trade tensions, inflation concerns, and the Fed’s tightening policies. These factors together jeopardise the possibility of a smooth economic landing. A particularly complex dynamic Dardo addressed is the disconnect between the falling U.S. dollar and rising long-term bond yields. Normally, a weaker dollar would signal inflation, but that’s not the case here. Instead, it points to recession fears, signalling that the market is pricing in a downturn more than overheating.

Global Trade and Geopolitics in Focus

Trade tensions are also playing a bigger role. Dardo emphasises the importance of understanding global economic interdependencies. In today’s world, a tariff in one country can ripple across supply chains and capital flows, affecting markets around the globe. Investors should be attuned to geopolitical risk when evaluating their holdings.

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