The S&P 500 index breaks records almost on a weekly basis, making it seem like the United States is in a true golden age, just as the president claims. But the reality might not be quite so rosy.
And the problem goes beyond the rising national debt — though that’s certainly getting worse. The IMF estimates that U.S. debt will climb from 125% to 143% of annual revenue by 2030. By comparison, Italy’s debt is expected to hover around 137%, while Greece’s is set to drop to 130%.
The IMF also predicts that the U.S. budget deficit will stay above 7% of GDP each year until 2030 — the highest among wealthy nations. Meanwhile, Italy aims to cut its deficit to 2.9% this year, despite Donald Trump’s earlier promises to tackle the problem.
The decline in consumer confidence is also concerning. For example, the University of Michigan Consumer Sentiment Index dropped to 53.6 in October from 55.1 in September, falling short of the preliminary 55.0 reading. The Conference Board’s confidence index also slipped during the month.
The situation could get worse if layoffs start to pick up — and there are early signs they might. Reuters reports that Amazon plans to cut up to 30,000 corporate jobs to reduce costs and correct for overhiring during the pandemic boom. UPS, Nestlé, and other major companies are already carrying out layoffs.
Whether this trend is driven by the rise of artificial intelligence or broader economic concerns isn’t the main point. What matters more are the consequences — particularly that widespread job losses could weigh on corporate earnings, especially in the consumer discretionary and services sectors.
For now, though, things still look relatively solid. FactSet data shows the consumer discretionary sector is delivering some of the biggest positive surprises in earnings compared to estimates. Companies like Nike ($0.49 vs. $0.27) and Ford ($0.45 vs. $0.35) have posted significantly better-than-expected earnings per share.
So, is a recession looming and with it, a drop in the S&P 500?
While macroeconomic indicators are showing strain, corporate earnings haven’t taken a catastrophic hit… yet. What happens next is anyone’s guess. For now, investors are still riding the wave of generally positive sentiment and the ongoing AI craze.
Recent announcements of collaborations between Nvidia and companies like Palantir, CrowdStrike, Uber, Stellantis, Lucid, Mercedes-Benz, Oracle, Eli Lilly, Microsoft, Super Micro, Johnson & Johnson, Hewlett-Packard, and Nokia — as well as new partnerships from OpenAI — have kept the rally going. But how long this momentum can last remains to be seen.
