Mark Zandi warns America is ‘close to the edge’ with 40% recession risk — and says US stocks are detached from reality more than ever

“Just for context, in a typical economy, what economists would call the unconditional probability of recession is closer to 15%,” he said. “So, 40% is very elevated, very uncomfortable — it gives you a sense of how close I think things are to the edge here.”

Zandi’s warning came even after a better-than-expected jobs report, with the U.S. economy adding 115,000 jobs in April while the unemployment rate held steady at 4.3%.

But the headline number didn’t change his view.

“The labor market is still a vulnerability in the economy, still very soft,” he said, adding that recession risks remain “very high.”

Zandi said businesses remain reluctant to hire, with hiring rates “still very low across most industries.” Hours worked also remain depressed, which Zandi said is “kind of consistent with what you’d see in a recession.”

He also pointed to falling labor-force participation — meaning fewer people are actively working or looking for work — as a warning sign. If participation had stayed steady over the past year, Zandi said, the unemployment rate would be closer to 5%.

At the same time, inflation is becoming a bigger concern. Zandi said price pressures are picking up because of the Iran war, higher energy prices, tariffs and other factors — and that is eating into household purchasing power.

“Real disposable income — that’s after tax, after accounting for inflation — is no higher today than it was a year ago,” he said. “So, there’s been no growth in purchasing power, and that’s going to get worse and start declining.”

That pressure is already showing up in the choices consumers are making.

Zandi noted that wealthy households are drawing down savings to supplement their purchasing power and maintain spending. But lower- and middle-income households don’t have the same cushion.

“They’re living more paycheck to paycheck,” he said.

If Americans have to put more of their paychecks into the gas tank, he warned, they have less left over for everything else — from gym memberships to food choices.

“You’re gonna have to trade down. You can’t have beef — you gotta have chicken,” he said.

Stocks are not the economy

Meanwhile, Wall Street has been telling a very different story. Both the S&P 500 and the Nasdaq Composite have recently climbed to fresh highs.

To Zandi, that disconnect is part of the problem.

“The stock market’s not the economy,” he said. “In my 36 years as a professional economist, the stock market’s never been more disjoint from the economy.”

He attributed much of the market’s strength to artificial intelligence, especially large tech companies.

“What’s driving the stock market train is these big hyperscalers and chip companies,” he said, adding that the AI trade “runs on its own dynamic” and “has nothing to do with the economy.”

Zandi also said investors appear to be betting that President Donald Trump will pivot if the economy or markets start to wobble.

“Stock investors are looking at the president, the president’s looking at the stock market,” he said. “That doesn’t feel like a stable… equilibrium — it’s kind of like a hall of mirrors.”

Zandi also warned that valuations are stretched.

“Valuations are awfully high,” he said, noting that price-to-earnings multiples are near historic highs, “except for perhaps during the internet bubble, which didn’t end so well.”

Zandi isn’t alone in sounding the alarm. Billionaire hedge fund manager Paul Tudor Jones has said that the market “feels exactly like 1999.”

Meanwhile, Warren Buffett’s Berkshire Hathaway now holds $397.4 billion in cash — a record amount that many investors interpret as a signal of caution in an expensive market.

To be sure, markets are inherently volatile, and no forecast is guaranteed. But with valuations stretched and recession risk elevated, now may be a good time to consider how to diversify beyond traditional stocks.

Here are three simple ways to start.

‘A very effective diversifier’ for bad times

When storm clouds gather over the economy, many investors start looking for assets that don’t depend entirely on corporate earnings or stock-market momentum.

That’s where gold often comes into the picture.

The precious metal has long been viewed as a go-to safe haven, especially during periods of economic stress or geopolitical turmoil. Unlike stocks, gold is not tied to a company’s future performance. And unlike cash, it can’t be printed at will by central banks.

Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, told CNBC last year that “people don’t have, typically, an adequate amount of gold in their portfolio,” adding, “when bad times come, gold is a very effective diversifier.”

Even after a recent pullback, gold prices are still up nearly 40% over the past 12 months.

One way to invest in gold that also provides significant tax advantages is to open a gold IRA with the help of Priority Gold.

Gold IRAs allow investors to hold physical gold or gold-related assets within a retirement account, combining the tax advantages of an IRA with the protective benefits of investing in gold — making it an appealing option for those looking to help shield their retirement funds against economic uncertainties.

And when you make a qualifying purchase with Priority Gold, you can receive up to $10,000 in precious metals for free.

Income, even in a down market

Like stocks, real estate has its cycles, but it doesn’t rely on a booming market to generate returns.

Even during a recession, high quality, essential real estate can continue to produce passive income through rent. In other words, you don’t have to wait for prices to rebound to see a payoff — the asset itself can work for you.

It’s also a time-tested hedge against inflation. As the cost of materials, labor and land rises, property values often increase as well. At the same time, rental income tends to climb, giving landlords a revenue stream that adjusts with inflation.

Owning rental property allows investors to collect monthly rent payments, but being a landlord is rarely as passive as it sounds. Managing a property involves finding and screening tenants, collecting rent and handling maintenance and repair requests (out of your own pocket) — and that’s assuming you can save enough for a down payment and get a mortgage to buy the property in the first place.

But now, you don’t need to buy a property outright to reap the benefits of real estate investing. Crowdfunding platforms like mogul offer an easier way to get exposure to this income-generating asset class without the down payment.

The investment platform offers fractional ownership in blue-chip rental properties, giving investors monthly rental income, real-time appreciation and tax benefits —minus the 3 A.M. tenant calls.

Founded by former Goldman Sachs real estate investors, the team hand-picks the top 1% of single-family rental homes nationwide for you. In other words, you gain access to institutional-quality offerings for a fraction of the usual cost.

Each property undergoes a rigorous vetting process, requiring a minimum 12% return even in downside scenarios. Across the board, the platform features an average annual IRR of 18.8%. Offerings often sell out in under three hours, with investments typically ranging between $15,000 and $40,000 per property.

You can sign up for an account and then browse available properties here.

An overlooked alternative

Prominent investors like Dalio often stress the importance of diversification — and for good reason. Many traditional assets tend to move in tandem, especially during periods of market stress.

That message feels especially relevant today. Nearly 40% of the S&P 500’s weight is concentrated in its ten largest stocks and the index’s CAPE ratio hasn’t been this high since the dot-com boom.

This is where, for many investors, alternative assets come into play. These can include everything from real estate and precious metals to private equity and fine art.

It’s easy to see why great works of art tend to appreciate over time. Supply is limited and many famous pieces have already been snatched up by museums and collectors. Art also has a low correlation with stocks and bonds, making it a solid diversification option.