- The US economy and stock market are on a clear path to recession, according to Paul Dietrich.
- The B. Riley Wealth Management CIO pointed to a handful of warning signs that suggest a downturn is on the horizon.
- The final blow to the economy could be the US pulling back on stimulus spending, he warned.
There's a large number of warnings flashing for the US that suggest the economy is on a near-certain path to recession, according to B. Riley Wealth's chief investment strategist Paul Dietrich.
Dietrich, a Wall Street vet who was among the observers who called the 2008 recession, has been warning for months of another downturn coming for the US. In a recent note, he pointed to a cluster of warning signs in the economy, such as hotter-than-expected inflation throughout the first quarter and greater volatility in the market. Stocks and bonds have seen muted gains this spring, while oil and gold, which typically perform well in inflationary environments, are rising, Dietrich noted.
Economic growth is also starting to slow, with GDP rising 1.6% over the first quarter, down from 3.4% in the final quarter of 2024. Consumer confidence is also "plummeting," Dietrich said, while job growth has slowed, with the unemployment rate recently touching its highest level in two years.
Meanwhile, yields on US Treasurys are nearly four times the yield of S&P 500 dividends — a sign investors are anticipating interest rates to stay higher for longer. That's the highest Treasury yields have been since 2001, and only the second time in the last 100 years when yields have been that high.
"The economy and the stock market have never seen anything like this in history. Everything reminds me of the Dot-com bubble in 2001-2002," Dietrich said.
He speculated that the next recession has been postponed by the trillions of stimulus spent during the pandemic, though the economy is still on track for a downturn. Once that support stops, that could be the "final blow" to stocks, which look propped up by "investor overconfidence" and "a complete disconnect from any company fundamentals," he added.
"Since the current deficit spending is unsustainable, it will end at some point. When it does, the effect will be brutal for jobs, the economy, and the global stock markets," Dietrich warned.
Dietrich is among the most bearish forecasters this year, even as calls for a recession have eased and observers say a coming downturn is likely to be short-lived. Previously, Dietrich warned that stocks could crash as much as 44% as the US economy weakens, even if the recession turns out to mild.