The view of Wall Street on a “Kevlar economy” has just been broken, but the red flags hid under the radar

This was obvious in Friday’s stock market sale as a report of dismal jobs and shocking the downward revisions of previous months made fears of recession.

But not everyone was surprised, because some at Wall Street had previously sounded the alarm on forgetting and various red flags associated with slowdowns.

In a note from Tuesday, James St. Aubin, CIO of Ocean Park Asset Management, warned that investors leaned too much over the account of economic resilience.

The idea of a “Kevlar economy” had fueled the complacency which presented itself in the stretched assessments, the tight credit differences and the risk subtarification, he added, referring to the synthetic fiber used in the bulletproof vests.

One of the risks is the political pressure that slips into decision -making of the federal reserve, said St. Aubin. For months, Trump and the other managers of the White House have required reductions in infants, which even suggests that cost -renovations on a seat renovation project are president Jerome Powell to oust.

Another risk is that stock market investors considered prices as a temporary idle bump which would be offset by tax reductions and capital expenditure in the technological sector on AI. But St. Aubin pointed out that the prices have struck businesses unevenly, some are much more exposed than others.

“If you believe too much for resilience, you are not entirely compensated for the risks you take,” he added. “Something is not always going ultimately – whether it is a risk hiding at sight or something that you could not see coming.”

Consumer expenses in services

Admittedly, the American economy had previously demonstrated surprising sustainability. In 2022, after the Fed launched its most aggressive Radula campaign in more than 40 years, Wall Street largely assumed that a recession would follow. But it never came and inflation has strongly cooled.

And earlier this year, economists feared that Trump prices would feed a sharp increase in inflation. But while certain imported areas have increased, the overall rate has been more to a mute, so far.

However, a deeper dive into some of the title numbers has revealed disturbing signs. Last month, Wells Fargo economists stressed that, although discretionary expenses in goods are maintained, spending on services fell 0.3% until May on one year on the other.

“It is certainly a modest drop, but what is frightening is that in more than 60 years, this measure decreased only during or immediately after the recession,” they wrote in a note.

Expenses in food services and recreational services, which include things such as subscriptions to the gymnasium and streaming subscriptions, were barely higher.

Meanwhile, transport expenditure fell by 1.1%, led by a drop in car maintenance, taxis and carpooling and plane trips, which experienced the highest to 4.7%.

“The fact that households discourage automobile repair, do not take an Uber and do not cut or eliminate air travel points to extensive household budgets,” said Wells Fargo.

Housing market

In May, Citi Research recalled that the late economist Ed Leamer had published an article in 2007 which said that residential investment is the best indicator of recession coming in the opposite direction.

“We would be wise to take into account its warning,” said Citi.

In fact, residential fixed investment decreased by 4.6% in the second quarter, according to data published Wednesday, after having contracted 1.3% in the first quarter.

And overall construction expenses continued to decrease in June, led by a steep dive in new unified houses. This is because mortgage rates remain high, which represents a major obstacle to affordability, while the prices of houses are always high.

“Residential fixed investment is the most interest -sensitive interest sector in the economy and now indicates that mortgage rates of around 7% are too high to maintain expansion,” Citi said in May.

Laboratory

Citi economists have long been among the least optimistic at Wall Street, and before the surprising data on Friday pay, they had already sniffed signs of weakness.

In particular, they reported a drop in the labor market participation rate, which had abolished the unemployment rate because it meant that fewer people were looking for work.

Citi minimized the idea that Trump’s immigration repression was mainly responsible for the lower participation rate. Instead, economists have underlined low hiring as an indication of lower demand for workers.

Friday, Citi saw its previous warnings take place and predicted that Wall Street would begin to come.

“The sweetness that had been obvious in the details of the report on jobs is now obvious in the numbers,” said the bank. “FED markets and officials should now narrowerly reflect our opinion that a low stiffness labor market, as well as slowdown in growth, create a drop -down risk for employment and reduces the risk of persistent inflation.”