#The Market Looks Fragile, But Is It?
Bearish pressure is building in 2025. From unemployment to interest rates, from AI froth to commercial real estate defaults, there’s no shortage of red flags for investors to worry about.
And more risks are bubbling up, sticky inflation, consumer debt, political uncertainty, and slowing global growth are all on the radar.
But here's the thing. Markets aren’t pricing in disaster. Because for each of these risks, there’s also a valid reason to believe the worst outcomes may not happen. Not every crack becomes a collapse.
Let’s break down what investors are afraid of right now, and why the full picture may be more balanced than the headlines suggest.
#1. Unemployment Is Ticking Up
The U.S. jobless rate rose to 4.2% in April1. A weakening labor market can cool spending, reduce earnings, and slow growth.
Why It May Not Be a Signal Yet
Job creation remains steady in key industries. Wage growth still outpaces inflation. Labor force participation is climbing, and layoff data remains below long-term averages.
#2. AI Stocks Look Frothy
Big money is chasing AI, but the valuations on some names look unsustainable2. Investors worry about a repeat of the dot-com bust.
Why It’s More Grounded This Time
Companies like Microsoft, Nvidia, Meta, Palantir, and Amazon are already monetizing AI at scale. Growth isn’t just projected, it’s showing up in revenue and margins. AI demand is embedded in enterprise IT spending, not just speculative bets.
#3. Commercial Real Estate Is Weak
Delinquencies are rising, especially in office and retail properties. In March, CMBS delinquency hit 6.65%3, nearing a four-year high. Multifamily delinquencies surged to 5.44%, while retail delinquencies rose to 7.82%. Regional banks are exposed.
Why It’s Not Spreading Systemic Risk Yet
Demand remains strong in data centers, logistics, and medical office space. Institutional investors are still deploying capital into high-quality REITs. Banks most at risk are small, localized, and manageable.
#4. Housing Is Still Unaffordable
High mortgage rates and tight supply are locking buyers out. Home sales have dropped sharply.
Why It Hasn’t Collapsed
Homeowners have record equity and low debt. Defaults remain historically low. Builders are shifting to smaller, more affordable homes. Demographic demand from younger generations remains strong.
#5. Crypto Is Sliding Again
Bitcoin and altcoins dropped sharply this spring, triggering fears of another broad risk-off environment.
Why It’s More Stable Than It Looks
Spot Bitcoin ETFs saw massive inflows. Major financial institutions are now offering custody and trading solutions. The market is more regulated, more institutional, and more resilient to panic selling.
#6. Trade War Risks Are Back
President Trump's sweeping tariffs have reignited global trade tensions. Investors fear rising costs and renewed supply chain disruptions.
Why It’s Contained So Far
The United States-Mexico-Canada Agreement (USMCA) remains intact. Goods that comply with USMCA rules of origin are exempt from the new tariffs, helping to stabilize trade within North America. Key sectors like energy, autos, and agriculture face limited impact. Cross-border volumes are stable, and nearshoring has reduced overseas exposure.
#7. Japan May Hike Rates
If the Bank of Japan tightens policy4, it could trigger a yen carry trade unwind, disrupting global liquidity and impacting risk assets.
Why That Doesn’t Mean a Meltdown
Any hikes will likely be gradual. Japan still faces structural deflation. The yen carry trade is increasingly hedged, and market volatility remains low.
#8. Geopolitical Flashpoints Are Everywhere
Conflicts in Ukraine, the Middle East, and East Asia are escalating. That brings risk to energy prices and global stability.
Why Markets Are Staying Focused
Oil is trading under $85, and supply chains have adapted. Defense spending is rising, but financial contagion hasn’t materialized. Equity volatility remains contained for now.
#9. The Shiller PE Ratio Is Near Dot-Com Levels
At nearly 355, the CAPE ratio is well above its long-term average, raising fears of a broad valuation reset.
Why It’s Not 2000
Today’s top-weighted companies, Apple, Microsoft, Alphabet, are highly profitable, cash-rich, and dominant in their sectors. Low interest rates and structural tech leadership explain part of the premium.
#10. Bird Flu Outbreak Is Spreading
Avian flu has hit poultry and dairy farms across the U.S. and Canada. Some fear inflation and consumer panic.
Why It’s Not Driving Inflation
The CDC and USDA have moved quickly. Human transmission is rare, and supply chain disruptions have been limited. Food price increases have been localized, not systemic.
#11. Regional Banks Still Look Fragile
Many small and mid-sized banks are sitting on unrealized losses and Commercial Real Estate (CRE) exposure. Investors fear a second wave of failures.
Why the System Is Resilient
Capital buffers are strong. The Fed’s liquidity facilities are active. Deposit flight has stabilized. Large regionals have diversified their loan books and fee-based revenue streams.
#12. Sticky Core Inflation Limits Rate Cuts
While headline inflation has cooled, core inflation, driven by shelter, wages, and services, remains above target. This ties the hands of the Fed and the Bank of Canada.
Why It Hasn’t Broken the Economy
Real rates are positive, but manageable. Businesses are adjusting. Inflation expectations are still anchored, and commodity prices are not spiking. Central banks can afford to pause, not panic.
#13. Corporate Earnings Growth Is Slowing
Margins are under pressure from rising costs and fading pricing power. Revenue growth is harder to come by.
Why That’s Not Yet a Breakdown
Earnings estimates for Q2 are still rising. Many sectors, particularly energy, industrials, and services, are seeing resilient demand. Management guidance remains cautiously optimistic.
#14. Consumer Debt Is Climbing
Delinquencies on credit cards and auto loans are rising, particularly among younger and lower-income households.
Why It’s Not a Tipping Point Yet
Household balance sheets are still relatively strong. Unemployment is low, and wage growth helps offset higher interest burdens. Consumers are shifting spending, not pulling back completely.
#15. China’s Growth Is Stalling
China is dealing with property sector fallout, high youth unemployment, and weak exports.
Why Global Contagion Is Unlikely
North American exports to China are limited. U.S. and Canadian markets are more driven by domestic demand. China’s stimulus efforts, while small, are stabilizing its equity and bond markets for now.
#16. U.S. Fiscal Deficit and Treasury Issuance Are Surging
Massive new debt issuance is pushing up long-term rates. Some fear crowding out of private investment.
Why Investors Are Still Buying
Demand for Treasuries remains strong from institutions, pensions, and foreign buyers. The U.S. dollar is still the global reserve currency. The curve has steepened slightly, but remains anchored.
#17. Yield Curve Is Still Inverted
The 2-year yield remains above the 10-year. Historically, that has been a reliable recession indicator.
Why The Inversion May Be Misleading
The inversion has persisted without a recession for over a year. Real-time data shows GDP growth, job creation, and capex holding up. Markets may be signaling long-term disinflation rather than imminent contraction.
#18. Manufacturing Is Contracting
ISM manufacturing has been below 50 for more than 12 months. This points to weakening demand.
Why It’s Not Broad-Based Weakness
Services PMI remains in expansion. Manufacturing softness is concentrated in exports and durable goods, not across the board. Capex in AI infrastructure and energy remains strong.
#19. Political Uncertainty Still Lingers
Even outside of an election year, the political climate remains polarized. Budget negotiations, tax policy, and geopolitical posturing continue to shape the market backdrop.
Why Markets Stay Focused on Fundamentals
Markets have historically performed well under divided governments. Policy shifts are less likely without a clear mandate. Investors tend to recalibrate based on earnings, interest rates, and macro data—not political noise.
#What Should You Do Now?
The right approach isn’t fear or complacency. It’s clarity.
Now is the time to:
Trim overexposure to speculative tech or illiquid positions
Focus on companies with real profits, healthy cash flows, and pricing power
Keep cash for opportunities created by volatility
Diversify across defensive sectors and geographies
Recheck your portfolio’s downside risk and liquidity
Markets are messy right now, but that’s when disciplined investors get rewarded.