Economic Data Predicts Pain

Wall Street Braces for Economic 'Pain' as Stagflation Takes Hold

When reporters asked Clubber Lang, played by Mr. T, for his prediction in Rocky III, his answer was brutally simple: "Pain." This week, as analysts and investors look at the state of the U.S. economy, Greg Crennan, Chief Market Strategist at Golden Coast Consultants, offers the same forecast—pain.

The latest economic data paints a grim picture, reinforcing what Crennan has long warned: stagflation has firmly taken root . As we previously analyzed in our report Hotel Stagflation, the economy is experiencing sluggish growth, persistent inflation, and deteriorating consumer confidence, all while financial markets remain precariously overvalued as we stated here (25 Year of the Bear) as the only analyst on Wall Street with a bear market call for 2025.

Inflation Pain

Recent data confirms inflation remains far from the Federal Reserve’s 2% target. The Fed’s preferred inflation gauge rose 0.4% month-over-month—the highest reading in four months—pushing the 12-month inflation rate to 2.8%. Despite moderately high interest rates, inflation remains sticky, proving difficult to tame.

Adding to concerns, core inflation, which strips out volatile food and energy prices, remains even more persistent, with a 12-month increase of 3.4%, signaling entrenched price pressures across the economy.

With sticky inflation and tepid wage growth, the Fed remains in a difficult position—unable to cut rates without fueling further price increases, yet also unable to raise rates further without pushing the economy deeper into recession. This stagflationary trap leaves investors and consumers alike facing prolonged economic uncertainty.

The Consumer Pain

Consumer spending, the backbone of the U.S. economy, has fallen below estimates. With prices remaining high, households are tightening their wallets. The University of Michigan’s Consumer Sentiment Index plummeted to 57, signaling deepening concerns. More alarming, the Consumer Confidence Index has reached levels historically associated with recessions.

Retail sales have reflected this pullback, with February and March retail spending declining by 0.3% and 0.6% month-over-month, respectively, missing economists' forecasts.

Discretionary spending is also taking a hit. Major retailers have issued warnings about slowing consumer demand, with companies like Target and Lulu reporting disappointing earnings and forecasting weak sales ahead. Restaurant and hospitality spending has dipped, with travel bookings declining by -5% in the last quarter alone, signaling a broader economic slowdown.

All these indicators suggest that consumer resilience—long touted as a pillar of economic strength—is rapidly eroding, further reinforcing the notion that economic contraction is well underway.

GDP Contraction & Recession Warnings

The Atlanta Fed’s GDPNow estimate for Q1 2025 projects a sharp -2.8% contraction, confirming fears that the economy is shrinking. With declining corporate earnings and slowing demand, the question looms large: How can stocks justify their current valuations in the face of an economic downturn?

Markets Feeling the Pain

Asset prices are beginning to reflect this economic reality. The Nasdaq has tumbled 10% year-to-date and is down nearly 15% from its peak.

Tech giants—Apple, Amazon, Google, and Microsoft—have each suffered -20% declines, while high-flyers like Nvidia have plunged -26% and Tesla has cratered 45% from its highs just four months ago.

Safe Havens Shine

While risk assets falter, safe-haven investments have soared. Gold has surged to a record $3,100 per ounce, up 17% year-to-date, while silver has climbed nearly 20%. Bonds, often a refuge during economic uncertainty, have also gained 3% on principal alone, with total returns nearing 4.5% after interest payments.

Trade War Escalation Adds to the Pain

Adding to economic anxieties, President Trump’s renewed push for global trade wars threatens further disruption. The U.S. is on track for a third consecutive annual trade deficit in agricultural commodities—a phenomenon unseen in nearly 70 years.

The Kansas City Fed reports that farm loan defaults are rising sharply, with delinquencies up 55% in 2024, signaling a deepening crisis for the agricultural sector.

For more on the tariffs Check out Tariff Storm is coming Trump Tariffs

Market Outlook: More Pain Ahead?