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Bear Market
Business Cycle
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Bull Market
Fixed Income
Inflation
Equities
Diversification
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[Marci McGregor speaking throughout]
Encouraging trade negotiations have generated a market surge and — for now at least — have eased some of the widespread concerns over a potential recession in 2025.
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What are the chances of a recession this year?
Whichever way those negotiations go, the U.S. economy has already shown fundamental strength and resilience amid tariff-related business and supply chain disruptions, historic market volatility, and a declining dollar and more.
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Marci McGregor
Head of Portfolio Strategy
Chief Investment Office
Merrill and Bank of America Private Bank.
While a recession could still happen, our base case has the economy slowing in 2025 without entering the "R" zone.
Call it a case of Policy Shock Meets Economic Resilience.
Amid the uncertainties come positive signs from a U.S. economy that just won't seem to quit:
- Consumer confidence is down but spending stayed strong through early May.
- So far, inflation numbers have defied fears of a tariff-related surge.
- And the labor market, while not red hot, held firm through April.
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Spending was strong through early May.
Inflation rose less than anticipated in May.
Labor market held firm through April.
What's behind such positive surprises? We see two main drivers:
First: A thriving U.S. services economy. Services account for 70% of consumer spendingFootnote 1 and are less sensitive than goods to tariff disruption.
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Positive signs from the U.S. economy:
- A thriving U.S. services economy
- The "wealth effect"
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Footnote 1 U.S. Energy Information Administration, March 2024.
Second: The "wealth effect." Recent volatility aside, stock ownership and rising real estate values have led to a surge in U.S. wealth relative to liabilities — adding to consumer resilience.Footnote 2
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Footnote 2 International Energy Agency, as of October 2024.
Like consumers, investment markets have shown plenty of resilience, regaining ground lost after the tariff announcements. But uncertainties abound. Trade setbacks or other events could still send the economy and markets in the wrong direction without warning. That's why, for investors, we would suggest staying diversified, staying invested and staying focused on your long-term goals.
Thanks for watching, and that's the Market Decode.
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Important Disclosures
The opinions expressed are as of May 28, 2025 and are subject to change.
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After weeks of tariff-related business disruptions, economic uncertainties and market volatility, ongoing trade talks have eased widespread fears of a 2025 recession. "Beyond those encouraging signs, there are reasons to believe we'll avoid a recession," says Marci McGregor, head of Portfolio Strategy for the Chief Investment Office (CIO), Merrill and Bank of America Private Bank. "At a difficult moment, the U.S. economy has shown remarkable resilience."
In the video above, McGregor explains why and how consumer spending and the labor market have outperformed expectations despite widespread fears that both might wither in the wake of continued volatility. While a recession could still happen, the power of the U.S. economy and higher individual wealth relative to liabilities have buffered the economy, McGregor says.