Darius recently joined our friend Jeremy Szafron on Kitco News, where they discussed the recent decline in housing starts, the U.S. economy, inflation, and more.

If you missed the interview, here are the three most important takeaways from the conversation that have significant implications for your portfolio: 

1. What Does The Recent Housing Market Data Indicate About The Broader Economy?

Recent housing starts and building permit data, along with last week’s NAHB homebuyer market sentiment report, suggest an accelerated decline in the housing market, with housing starts and building permit data at levels not seen since summer 2020. This is concerning because the housing cycle has historically been a persistent leading indicator of the broader business cycle. 

As a result, we anticipate growth will slow in the coming months. However, we do not advise investors to position for a developing recession in the U.S. economy. 

Specifically, the latest retail sales and industrial production data, and other persistent leading indicators of the business cycle, currently indicate a recession is unlikely to materialize over a medium-term time horizon (3-12 months). Instead, we are currently observing a meandering off the top of the growth curve, which we believe is likely to persist over the next year or so.

2. How Is The U.S. Economy Transitioning From Its Growth Cycle Upturn?

The U.S. economy has been in a growth cycle upturn since the summer of 2022 when we authored our ‘Resilient U.S. Economy’ theme. We are now observing an economy that is merely getting less resilient. 

Current data suggests a softening labor market, potentially at a faster rate than in recent quarters. However, our comprehensive analysis of leading indicators—including jobless claims, temporary employment, cyclical employment, layoffs, discharge rates, productivity, and corporate profit growth—does not indicate an impending severe downturn that would pose significant market risk. 

While growth is likely to slow over the medium term, we do not anticipate the U.S. economy will decelerate as rapidly as the consensus currently expects. As a result, we believe the rate cuts presently priced into the 2025 forward rate curve in the U.S. are unlikely to materialize. A reconciliation is likely to occur near the year, but for now, we maintain a relatively optimistic outlook for asset markets – especially through year-end.

3. What Economic Challenges Might Emerge In 2025?

Our research suggests the inflation cycle will hit its low in the coming months before rising throughout 2025. This scenario implies growth potentially slowing to a below-trend pace in early 2025, with inflation bottoming at a level inconsistent with the Fed’s 2% target before reaccelerating. 

Concurrently, we might observe a moderation or significant slowdown in productivity growth. The combination of slowing growth, rising inflation, and reduced productivity could lead to a margin squeeze and a significant slowdown in earnings. From a timing perspective, we view the first half of next year as the period with the most market risk. 

Investors will likely need to reset their expectations for 2025 earnings lower during this time. However, we do not believe the markets need to debate this excessively at present because, historically, markets typically focus only on the next one to three months.

That’s a wrap! 

By now, you’ve likely realized that piecing together an investment strategy from finance podcasts, YouTube videos, and macro “gurus” on 𝕏 is not delivering the results you know you deserve. 

This kind of approach only leads to confusion from conflicting advice, frustration from mediocre returns, and exhaustion from the emotional rollercoaster of your portfolio swings.

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