For more than a decade, U.S. economic resilience has provided an extraordinary tailwind for investors. Since the financial crisis of 2008, markets have repeatedly benefited from growth that outperformed forecasts, low inflation (at least until recently), and an environment in which recessions either didn’t materialize or arrived and ended quickly. For wealth advisors and RIAs guiding clients through volatile cycles, this backdrop has reinforced confidence in equities, diversified portfolios, and the durability of the American economy.
But resilience can create blind spots. Today, many investors and professionals are wrestling with the paradox of an economy that has continuously avoided the worst-case scenarios. After such a long stretch of stronger-than-expected growth, the risk is that advisors, asset managers, and clients alike become lulled into a sense of permanence—believing downturns are no longer part of the investment landscape. That mindset can leave portfolios exposed when economic weakness inevitably returns.
Warning Signs in the Labor Market
The most immediate pressure point is the labor market. For months, headline indicators have sent mixed signals. Job growth has slowed significantly, with only anemic increases in payrolls over the last four months. Unemployment is trending higher, while job openings—a measure of future labor demand—have fallen from their pandemic-era peaks.
At the same time, unemployment claims remain historically low, suggesting that layoffs are not accelerating in a systemic way. And despite ticking upward, the unemployment rate itself is still near multi-decade lows compared to past cycles. This duality—weakening growth in jobs but no collapse—creates a difficult interpretive challenge for advisors trying to gauge the health of the economy.
Even Jerome Powell, in recent remarks, acknowledged what he described as “meaningful weakness” in labor markets. Yet equity markets seem to be ignoring that caution. For RIAs counseling clients, this divergence between economic signals and market performance raises the question: are investors properly discounting risk, or has optimism turned into complacency?
Investor Sentiment: Fear Missing Out More Than Fear of Loss
Major equity indexes have pressed to new highs this year, fueled by enthusiasm around artificial intelligence, resilient corporate earnings, and the perception that the Federal Reserve may be nearing the end of its tightening cycle. Measures of sentiment underscore how bullish investors have become. The CBOE Volatility Index (VIX) sits around 16—historically low, implying investors see little need to hedge portfolios. Meanwhile, CNN’s Fear & Greed Index currently places options activity in the “extreme greed” category, with put-call ratios suggesting traders are overwhelmingly positioned for upside.
For advisors, this environment poses a communication challenge. Clients are bombarded with headlines about record market highs and technological innovation fueling the “next big thing.” But beneath the surface, complacency is evident. Tom Essaye, founder of Sevens Report Research, described recessions as almost “theoretical concepts” for today’s investors. Warnings persist, but downturns either fail to arrive or vanish so quickly that they barely register.
That mindset is dangerous. The pandemic recession in 2020, while severe, lasted only two months on paper and was followed by a historic bull run. The 2023 interest rate shock and this year’s tariff worries have so far passed without systemic damage. Each near-miss reinforces the belief that the U.S. economy is impervious to shocks, creating what advisors must recognize as a false sense of security.
A Long Expansion Breeds Complacency
The resilience of the last 15 years has been extraordinary. The period from 2009 to 2020 marked the longest economic expansion in U.S. history. Even after that streak ended with COVID-19, the recovery proved swift and powerful. For many clients, especially younger investors who began building wealth after 2008, the dominant experience has been growth with only fleeting interruptions.
This creates behavioral risk. As Essaye noted, investors are starting to question whether downturns even matter anymore. Advisors must remember that markets are cyclical, not linear. While it is tempting to extrapolate the recent past into the future, ignoring recession risk can leave portfolios underprepared.
Christine Sol, investment strategist at SEIA, emphasizes this very point in her client guidance. Despite being surprised by the economy’s ability to absorb shocks, she remains concerned about complacency. “We’ve had the fastest rate hikes in history and still no recession,” she observed. “The tariff shock, the rapid pullback and recovery, still no recession. But that doesn’t mean risk has disappeared.”
Sol advocates a barbell approach—balancing offense and defense within portfolios. That means keeping clients invested in growth opportunities while also maintaining allocations to high-quality, low-volatility positions. For advisors, this framework provides a way to validate client optimism while also safeguarding against the potential downside.
Why Wall Street Isn’t Calling Recession
Another dimension to consider is the absence of recession forecasts from major Wall Street banks. A few years ago, nearly every major institution had a bearish case on the table, calling for slowdowns in 2022 or 2023. When those calls failed to materialize, many forecasters abandoned them.
David Rosenberg, a veteran economist with Rosenberg Research, points out the behavioral dynamics at play. After missing a recession call once or twice, strategists become reluctant to repeat the mistake. Forecasting a downturn that never comes can be a career risk, and many analysts are unwilling to carry that burden. As Rosenberg explained, “Nobody wants to call for the recession because of the embarrassment of missing the call.”
This avoidance reinforces complacency. When clients see major firms dismissing recession risks, they internalize the idea that the business cycle is fundamentally different today. Rosenberg warns against this mindset, describing it as a “classic case of burned once, twice shy.” Advisors, he argues, should resist that narrative and prepare portfolios for the reality that recessions have not been eliminated.
Echoes of the 1990s
For Essaye, today’s investor psychology is reminiscent of the late 1990s during the dot-com boom. Back then, new technology created euphoria that erased caution. While he acknowledges that the fundamentals supporting AI and today’s leading companies are stronger than the froth of internet start-ups, he sees parallels in investor sentiment. “This definitely has a ‘90s vibe to it,” he warned.
The danger is not that exuberance itself will cause a recession. Rather, when investors and advisors fail to plan for downturns, the impact of a slowdown becomes magnified. If clients believe “nothing can go wrong,” they are less prepared emotionally and financially for volatility. That makes drawdowns more painful and can trigger behavioral mistakes—panic selling, abandoning long-term strategies, or over-concentrating in speculative assets.
Implications for Advisors and RIAs
For wealth advisors and RIAs, the key challenge is countering complacency with perspective. Clients have become accustomed to resilience. They’ve seen markets rebound quickly from shocks and may interpret this pattern as a permanent feature of investing. Advisors must reframe that narrative, helping clients understand that resilience does not eliminate risk, it merely postpones it.
1. Communication and Education
Advisors should proactively discuss recession risk—not as a prediction, but as a reminder that cycles are inevitable. Stressing the role of diversification, quality, and liquidity can help anchor client expectations. Historical context, showing how markets behave over full cycles, can also reduce overconfidence.
2. Portfolio Construction
The barbell strategy recommended by Sol is particularly relevant. Advisors can pair growth exposures—such as AI-driven technology, healthcare innovation, or global infrastructure—with defensive allocations like Treasuries, investment-grade credit, and dividend-focused equities. This dual approach enables participation in upside while maintaining ballast for downturns.
3. Behavioral Coaching
In times of exuberance, clients often chase momentum or concentrate risk in the hottest sectors. Advisors play a crucial role in tempering those impulses, reminding clients that even strong themes like AI are not immune to volatility. Building guardrails around allocation and rebalancing can prevent portfolios from drifting too far toward risk.
4. Risk Management Tools
Despite low volatility, advisors should not abandon hedging strategies. Options overlays, tactical cash, or structured products can provide downside protection. While these tools may seem unnecessary in today’s environment, they become invaluable when sentiment shifts.
The Road Ahead
The U.S. economy has demonstrated remarkable adaptability, absorbing shocks from pandemics, policy tightening, and geopolitical uncertainty. That track record is a strength—but also a source of risk. As labor market weakness deepens, as global trade frictions resurface, or as the delayed effects of monetary policy fully emerge, the possibility of a downturn remains very real.
For advisors, the task is not to call the next recession with precision. It is to prepare clients for a range of outcomes. That preparation, built on balanced portfolios, disciplined processes, and clear communication, ensures that when the next cycle shift comes, clients will not be blindsided.
The past 15 years have taught investors that the U.S. economy is resilient. The next 15 may remind them that resilience is not the same as immunity. For RIAs and wealth advisors, recognizing that distinction—and planning accordingly—may be the most valuable service you provide in today’s market environment.
