Mark Zandi, chief economist at Moody’s Analytics, has become one of the most closely watched voices on the U.S. economy. His latest warnings suggest that while the country has not yet fallen into recession, the risks are mounting, and advisors would do well to prepare clients for more turbulence ahead.
Zandi has been increasingly vocal, recently writing that the U.S. economy is “on the precipice of recession.” His concern is not based on a single data point but on a broader set of policy headwinds, sectoral weakness, and the unpredictable nature of economic policymaking in Washington. For RIAs and wealth managers, his insights carry practical implications for portfolio construction, client communication, and risk management in the coming quarters.
The Policy Backdrop: A Drag on Growth
When Zandi talks about risks, he points first to policy. He argues that tariffs, restrictive immigration measures, and recent government efficiency cuts are combining to slow growth and complicate the inflation picture. At the same time, Federal Reserve policy—despite its well-telegraphed path—remains another drag, keeping businesses cautious about hiring and capital expenditures.
According to Zandi, these forces have not yet triggered widespread layoffs or a collapse in business investment. Instead, they have produced something more subtle but still consequential: hesitation. Companies are delaying projects, pushing off hiring decisions, and conserving cash. This creates an environment where economic momentum can erode slowly but persistently, leaving the economy more vulnerable to shocks.
For advisors, this means that while the headline economic data may not yet show a full-blown contraction, the tone among business leaders is increasingly cautious. This environment can weigh on earnings, particularly in sectors with high exposure to trade or labor shortages, and can contribute to more volatile market conditions.
Tariffs and the Consumer
Zandi is clear that tariffs are already filtering through to consumers, and he expects the impact to become more obvious in the months ahead. While the initial bite may have been muted, he warns that price increases will accelerate as tariffs become fully embedded in supply chains and retail pricing.
From a portfolio perspective, this suggests that consumer discretionary companies could face greater margin pressure, and households may reduce spending in response to higher prices. Advisors should consider how this dynamic might influence client exposure to consumer-focused sectors and whether overweight positions in discretionary or retail equities remain justified.
Defining a Recession
Unlike some commentators who use broad or imprecise definitions, Zandi defines recession specifically as a sustained period of job losses lasting for several months. By that measure, the U.S. is not yet in recession. Job growth, while slowing, remains positive.
Still, he emphasizes that predicting the exact timing of a downturn is impossible—especially given the erratic nature of current economic policy. He underscores that both the depth and duration of any recession will depend largely on policy decisions. If tariffs continue to escalate or immigration restrictions intensify, the downturn could deepen and extend. Conversely, a pivot toward more growth-friendly measures could mitigate some of the damage.
For wealth advisors, this uncertainty highlights the need to focus on resilience rather than precision. Instead of trying to call the exact start date of a recession, RIAs can help clients build strategies that can endure a range of outcomes, whether that means more defensive sector allocations, greater diversification, or enhanced liquidity reserves.
Sectoral Weakness: Cracks Already Showing
Zandi points out that while the broader economy may not yet be in recession, certain sectors already are. Construction and manufacturing, for instance, have slowed significantly and are grappling with both policy-driven pressures and cyclical challenges.
For investors with concentrated exposure to these industries—either directly through equities or indirectly through credit markets—the risks are already materializing. Advisors should be proactive in evaluating client portfolios for overconcentration in these vulnerable areas and discuss the potential benefits of rebalancing toward more resilient sectors such as healthcare, technology services, or utilities.
Rate Cuts: Cushion, Not Cure
The prospect of rate cuts later this year raises the question of whether monetary easing could stave off a downturn. Zandi is cautious on this front. He argues that rate cuts have already been heavily anticipated and priced into markets, reducing their impact. While easier policy may cushion the slowdown, it is unlikely to reverse the underlying trends.
This means investors should not rely too heavily on monetary policy to support asset prices. While bonds may benefit from falling long-term rates, the protective effect may be limited. Advisors should temper client expectations about the power of Fed action to stabilize markets in the face of broader policy headwinds.
Safe Havens May Be Scarce
Historically, Treasurys and the dollar have served as reliable safe havens during recessions. Zandi warns, however, that escalating tariffs could undermine this status, particularly if global investors begin to question the sustainability of U.S. economic policy.
For RIAs, this raises important questions about portfolio construction in a downturn. While high-quality fixed income may still provide some protection, it may not perform as strongly as in past recessions. Diversification across geographies and asset classes could be more critical than ever. Advisors may want to explore exposure to non-U.S. sovereign debt, alternative assets, or tactical strategies that can adjust to shifting conditions.
Policy as the Key Signal
Perhaps Zandi’s most important point for advisors is that policy will determine not just the onset of recession but also the eventual recovery. A shift toward more rational immigration policies or a halt in tariff escalation could provide the clearest signals that the downturn is ending. Until then, he sees little reason to expect meaningful relief.
For clients, this means that clarity will not come from economic data alone but from political decisions. Advisors may find it helpful to frame client discussions around scenarios: what happens if tariffs rise further, what happens if policy shifts, and what each path could mean for portfolios. This approach can help clients understand the contingent nature of current risks and prepare for a wider range of outcomes.
Practical Takeaways for Advisors
For RIAs navigating this environment, Zandi’s warnings suggest several action steps:
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Reassess client sector exposure. Look closely at manufacturing, construction, and consumer discretionary allocations, which face the most immediate pressures.
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Review fixed-income strategies. While bonds may benefit from falling long-term rates, consider diversifying beyond Treasurys to hedge against policy-driven risks.
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Emphasize resilience. Encourage clients to build portfolios that can withstand volatility rather than relying on precise forecasts.
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Focus on liquidity. In uncertain times, maintaining adequate liquidity can help clients meet cash needs without being forced to sell assets at depressed prices.
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Communicate policy uncertainty. Frame client conversations around scenarios tied to policy outcomes, helping them understand both risks and potential signals of recovery.
The Bottom Line
Mark Zandi’s assessment is not one of imminent collapse but of rising vulnerability. The economy is slowing, policy is weighing on confidence, and key sectors are already contracting. While recession is not yet official, the risk is real, and the eventual severity will depend heavily on decisions made in Washington.
For wealth advisors, this means preparing clients for heightened uncertainty and emphasizing strategies that prioritize resilience, diversification, and flexibility. Whether the recession arrives in the next few months or later, the work advisors do today to position portfolios and set expectations will be critical in guiding clients through what could be a challenging economic chapter.
