The recent batch of indicators has punctured the notion on Wall Street that the U.S. economy is bulletproof and can withstand headwinds like President Donald Trump\u2019s trade war.<\/p>\n
That was evident in Friday\u2019s stock market selloff as the dismal jobs report and shocking downward revisions<\/a> to earlier months raised recession fears<\/a>. Just days earlier, Rick Rieder, chief investment officer of global fixed income at BlackRock<\/a>, said the US was \u201cone of the world\u2019s most shock\u2011resistant economies<\/a>.\u201d<\/p>\n But not everyone was surprised, as some on Wall Street had previously sounded the alarm on overoptimism and various red flags that are associated with downturns.<\/p>\n In a note on Tuesday, James St. Aubin, CIO of\u00a0Ocean Park Asset Management, warned that investors were leaning too heavily on the narrative of economic resiliency.<\/p>\n The idea of a \u201cKevlar economy\u201d had fueled complacency that was showing up in stretched valuations, tight credit spreads, and an underpricing of risk, he added, referring to the synthetic fiber used in bulletproof vests.<\/p>\n One of the risks is political pressure creeping into the Federal Reserve\u2019s decision-making, St. Aubin said. For months, Trump and the other White House officials have demanded Fed rate cuts, even suggesting that cost overruns on a headquarters renovation project are grounds for Chairman Jerome Powell to be ousted.<\/p>\n Another risk is that stock market investors viewed tariffs as a temporary speed bump that would be offset by tax cuts and the tech sector\u2019s capital spending splurge on AI. But St. Aubin pointed out that tariffs hit businesses unevenly, with some are far more exposed than others.<\/p>\n \u201cIf you believe in resiliency too much, you\u2019re not being fully compensated for the risks you\u2019re taking,\u201d he added. \u201cSomething always goes wrong eventually \u2014 whether it\u2019s a risk hiding in plain sight or something you couldn\u2019t see coming.\u201d<\/p>\n Consumer spending on services<\/p>\n To be sure, the U.S. economy had previously demonstrated surprising durability. In 2022, after the Fed launched its most aggressive rate-hiking campaign in more than 40 years, Wall Street widely assumed a recession would follow. But it never came, and inflation cooled sharply.<\/p>\n And earlier this year, economists feared Trump\u2019s tariffs would fuel a big spike in inflation. But while some import-sensitive areas have seen an uptick, the overall rate has been more muted, so far.<\/p>\n However, a deeper dive into some of the headline numbers revealed troubling signs. Last month, economists at Wells Fargo<\/a> pointed out that although discretionary spending on goods had held up, spending on services<\/a>\u00a0dipped 0.3% through May on a year-over-year basis.<\/p>\n \u201cThat is admittedly a modest decline, but what makes it scary is that in 60+ years, this measure has only declined either during or immediately after recessions,\u201d\u00a0they wrote in a note.<\/p>\n Spending on food services and recreational services, which includes things like gym memberships and streaming subscriptions, were barely higher.\u00a0<\/p>\n Meanwhile, transportation spending was down 1.1%, led by declines in auto maintenance, taxis and ride-sharing, and air travel, which had the steepest drop at 4.7%.<\/p>\n \u201cThe fact that households are putting off auto repair, not taking an Uber and cutting back or eliminating air travel points to stretched household budgets,\u201d Wells Fargo said.<\/p>\n Housing market<\/p>\n