Recession Already Underway? Why Stocks Could Face A Year-End Bear Market

Forbes

16 hours ago

Investors chasing all-time highs now face the prospect of a 1970s-style double-dip bear market, ... More where stock returns stagnated amid economic turmoil.
The U.S. stock market is hitting record highs, luring investors with the promise of endless gains. But beneath the surface, the U.S. economy may already be in a recession, potentially since February or March 2025. Weak labor markets, sluggish GDP growth, and historical parallels to the 1970s signal trouble, with a bear market looming by year-end. Here's what the data reveals, why it matters for equities, and how investors can protect their portfolios.
Recession Indicators Are Mounting
Labor markets are a critical gauge of economic health, and current data shows clear signs of weakness. Deloitte's U.S. Economic Forecast reports rising unemployment and declining job openings, signaling a cooling economy that could tip into a mild recession by late 2025.
Additionally, the Treasury yield curve inversion, where the 2-year Treasury note yields more than the 10-year, has been a reliable recession predictor since the 1950s, and it's flashing warning signs now. GDP growth is also faltering, with Deloitte projecting just 1.1% growth for 2025, down from earlier estimates, and risks of contraction if consumer spending weakens further. Downward revisions are likely as hard data replaces preliminary surveys, potentially confirming a recession that began earlier this year.
Historical parallels amplify these concerns. The 1970s saw high inflation and double-dip recessions, with inflation peaking at 11.3% in 1974 due to oil shocks and loose monetary policy, followed by economic contractions in 1973–75 and 1980–82, as noted in a Federal Reserve History essay. Today's persistent inflation, hovering around 4% despite the Federal Reserve's 2% target, mirrors that era, raising the risk of economic stagnation.
The Threat Of A Bear Market
A recession doesn't guarantee an immediate market crash, and summer months often bring quieter trading. But complacency is dangerous. By late 2025, volatility could spike, driven by worsening economic data and external uncertainties. A recent MarketWatch report notes that high S&P 500 valuations, with price-to-earnings ratios above historical averages, increase vulnerability to corrections if recession fears intensify.
Proposed high tariffs, described as non-negotiable, add further unpredictability. Deloitte warns that trade disruptions could lead to a 0.3% GDP contraction in 2025 under a downside scenario, amplifying market risks. Investors chasing all-time highs now face the prospect of a 1970s-style double-dip bear market, where stock returns stagnated amid economic turmoil.
Strategies To Safeguard Your Portfolio
To navigate these risks, prioritize downside protection and equity trend-following strategies. Trend-following allows you to adapt to market shifts, avoiding the pitfalls of betting on sustained rallies.
In this environment, the U.S. is becoming less attractive for investment compared to developed European markets, which offer greater political stability and growth opportunities. According to Funds Europe, European equity strategies, particularly in defense, dominated ETF flows in May 2025, driven by EU initiatives to fund independent weapon systems through substantial debt issuance. This acts as a stimulus, fostering new industries with robust government support. In contrast, the U.S. faces austerity, a weakening dollar, and workforce challenges, making diversification into European markets a strategic move
The data suggests the U.S. may already be in a recession, with a bear market looming by late 2025. The yield curve inversion, slowing GDP, and labor market weakness signal economic trouble, while high valuations and trade uncertainties heighten market risks.