“Recession-proof” may be too bold a claim for economists, but market behavior increasingly supports the view that the U.S. economy is highly resilient heading into the back half of 2025.
DataTrek Research says that both equity and fixed income markets are sending unusually strong signals of confidence. Nicholas Colas, co-founder of the firm, highlighted two key indicators that wealth advisors may want to watch closely: soaring stock valuations and firming long-term bond yields.
Equities: Pricing in Peak Confidence
The S&P 500 has not only delivered a string of record highs—it’s now trading at valuations that surpass even those seen during the height of the late-1990s internet bubble. According to DataTrek, the index currently appears about 8% more expensive than it did during the dot-com peak based on forward price-to-earnings (P/E) ratios.
Looking ahead to 2026 earnings estimates, the S&P 500 could become 23% more expensive than its dot-com era valuation levels. “There’s no fundamental explanation for these levels without acknowledging that we’re seeing ‘Peak’ or even ‘Super Peak’ investor confidence,” Colas said.
For wealth managers, this kind of valuation backdrop requires a sharp focus on client expectations. High multiples reflect not just growth optimism but a deep belief that economic downside risk—particularly recession—is minimal or manageable. “Like it or not,” Colas said, “US large-cap valuations imply at least a ‘highly recession-resistant’ economy, if not a ‘recession-proof’ one.”
Fixed Income: Yields Confirm the Story
Bond markets are reinforcing the same narrative. The 10-year U.S. Treasury yield has been hovering around 4.4%, a level that reflects investor confidence in long-term economic growth—not fear of contraction.
According to Colas, this pricing behavior makes sense when you consider what happens when recession odds fall:
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Investors no longer expect inflation to drop sharply. Typically, recessions shave off about 4.4 percentage points from inflation on average. A reduced chance of recession means less downward pressure on inflation expectations.
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There’s also less anticipation that the Fed will need to cut rates to stimulate growth. That translates into higher long-term yields, as markets stop pricing in aggressive rate cuts.
Meanwhile, breakeven inflation on 10-year Treasury Inflation-Protected Securities (TIPS) was around 2.44%—a full notch above the 2% average that held through most of the 2010s. This adds another data point suggesting that markets are not buying into a return to the low-growth, low-inflation status quo of the last cycle.
“The idea that markets are sharply lowering future recession odds helps explain why nominal yields remain elevated,” Colas said. “It’s optimism about the U.S. economy’s recession resistance, not skepticism about the Fed’s ability to fight inflation, that’s driving this.”
Implications for Portfolio Strategy
For advisors and RIAs, these signals have several implications:
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Valuation Discipline Still Matters: Even if markets are confident, elevated equity valuations demand extra scrutiny. For growth-oriented clients, advisors may want to revisit allocation models and stress-test assumptions.
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Duration Risk Is Back: In fixed income, the era of ultra-low long-term yields appears to be over—for now. That means duration risk could become more relevant again in fixed income portfolios, especially for conservative clients.
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Inflation Expectations Are Anchored Higher: Breakeven rates suggest that 2.5% may be the new inflation norm. Planning assumptions around real returns and purchasing power may need to be revisited, particularly for retirement income planning.
Markets are clearly aligned with a narrative of strength—but the speed and magnitude of recent moves should serve as a reminder that sentiment can shift quickly. For now, however, the data shows investors are treating the U.S. economy as if it's built to withstand shocks.
Whether or not that confidence proves justified, it’s a message wealth professionals can’t afford to ignore.
