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Veteran financial analyst and commentator Gary Shilling is warning that the U.S. economy may be heading towards a recession by the end of the year, and that stocks could take a painful blow along the way (1).
The former Merilll Lynch economist says a downturn is now "almost inevitable," pointing to growing gaps in consumer spending, housing activity and business investment.
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If he's right, the fallout for investors could be severe. Shilling believes the S&P 500 could tumble as far as 30%, a drop he also says would be "no big deal by historical standards," but could still have marked impacts on investments.
"That's really on very thin ice in terms of income, in terms of people's willingness to spend," Shilling said, referring to the increasingly fragile state of the U.S. consumers' savings, which slowed to 3.6% — its lowest since 2022 (2).
This figure, known as the personal savings rate, indicates how much Americans have left over at the end of a given month — after accounting for things like debt, groceries and rent — to put towards their savings.
Shilling's outlook is rooted in a handful of warning signs that are becoming harder to ignore, and which he pointed out in October last year (3). He has a track record of being correct, having predicted the 2008 market collapse.
"It's only in retrospect, after the bubbles break, that you can look back and say, 'Boy, that was really out of hand'," Shilling told Business Insider.
This time around, Shilling points to recent pressure on consumer spending. Consumer spending accounts for roughly two-thirds of U.S. economic activity (4).
At the same time, households are still dealing with the cumulative effects of post-pandemic inflation. Energy prices alone rose 12.5% year-over-year in March, driven in part by rising oil costs tied to the ongoing war in Iran.
And other parts of the economy aren't very supportive, either. The housing market remains frozen as elevated mortgage rates keep buyers out and prospective sellers hunkered down (5).
Plus, business investment outside of AI has slowed. Capital expenditures grew just 3.9% at the end of last year, down from more than 24% during the pandemic-era surge.
Altogether, Shilling sees an economy that's slowing down and increasingly vulnerable.
At the same time, markets may not be prepared for a downturn. Shilling points to several valuation metrics suggesting stocks are historically expensive, including the inflation-adjusted price-to-earnings ratio, or the Shiller CAPE ratio (6).
Essentially, the ratio captures whether prices are rising faster than earnings. The higher the number produced by the underlying CAPE calculator, the greater the likelihood that the real value of a stock is lower than its listed price. However, the Shiller P/E ratio is limited by it looking at past data rather than future trends.
Higher numbers, therefore, mean that markets are overvalued and future returns could be lower. A low ratio indicates a good buying opportunity.
As of May 4, that ratio stands at 40.11 on GuruFocus, four points higher than in April (7). That puts it roughly around levels last seen before the Dotcom crash.
Another widely watched valuation measure suggests markets are already stretched too thin: the Buffett Indicator, also known as the Market Capitalization-to-GDP ratio. This tool assesses whether the aggregate stock market is overvalued, fairly valued or undervalued relative to the size of the economy (8).
When valuations are elevated per the Buffett Indicator, markets become more sensitive to slowdowns in growth or shifts in investor sentiment. This increases the risk of a sharper correction, should conditions deteriorate.
Currently, the Buffett Indicator sits at 232.6% — the highest level on record (9).
"Stocks are very expensive and there probably is a major correction coming somewhere in the relatively near future," Shilling said.
For consumers, it's a dangerous environment for investing. Even a modest shock can trigger outsized losses when markets are priced for perfection rather than realism.
A 30% dip, like the one Shilling is warning about, would turn a $200,000 portfolio into $140,000. That $60,000 hit could take years to recover from, depending on market conditions.
If Shilling's prediction comes true, investors won't just be dealing with paper losses. That kind of downturn leads to job uncertainty, tighter credit and borrowing budgets, and higher living costs all at once.
That's why preparing for a recession isn't just about picking the right investments. It's about finding the right positions for your money across three timelines: short-term stability, mid-term wealth protection and long-term diversification.
A rock-solid emergency buffer can keep the boat from rocking too much as tides rise. With savings already stretched thin, even a temporary loss of income or unexpected expense could force people to sell investments at the worst possible time — locking in losses during a downturn.
Building an emergency fund can help prevent that scenario and give you the runway to recover.
One way you could do this is with the Wealthfront Cash Account, which can help you build an investment base through a combination of high-interest rates and ease of access.
A Wealthfront Cash Account can provide a base variable APY of 3.30%, but new clients can get a 0.75% boost over their first three months on up to $150,000 for a total APY of 4.05% provided by program banks on your uninvested cash.
That's ten times the national deposit savings rate, according to the FDIC's January report.
Additionally, Wealthfront is offering new clients who enable direct deposit ($1,000/mo minimum) to their Cash Account and open and fund a new investment account an additional 0.25% APY increase with no expiration date or balance limit, meaning your APY could be as high as 4.30%.
With no minimum balances or account fees, as well as 24/7 withdrawals and free domestic wire transfers, you can ensure your funds remain accessible at all times. Plus, Wealthfront Cash Account balances of up to $8 million are insured by the FDIC through program banks.
Beyond cash, some investors try ways to protect their wealth when markets become volatile. With energy prices rising and global tensions adding uncertainty to the economic outlook, some investors are turning to precious metals.
Gold has long been viewed as a hedge during periods of economic stress, inflation and geopolitical instability — all risks that appear to be resurfacing. Unlike stocks, its value isn't directly tied to corporate earnings or market sentiment.
One way to invest in gold while also enjoying significant tax advantages is to open a gold IRA with 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, offering a potential barrier against a 30% drop in equities.
To learn more, you can get a free information guide that includes details on how to get up to $10,000 in free silver on qualifying purchases.
For investors willing to think beyond traditional markets, alternative assets can offer exposure to returns that dance to their own rhythm. That's to say, they don't move in lockstep with the S&P 500.
Now, Masterworks is offering a single investment that combines blue-chip art with other scarce assets, such as gold and bitcoin, that have historically moved independently of equities and of one another.
The result is a more balanced, all-weather approach to alternative investing. In fact, this model would have outperformed the S&P 500 by 3.1x from 2017 to 2025.
By leveraging access to museum-quality artwork alongside other uncorrelated assets, the strategy aims to enhance diversification while still pursuing meaningful appreciation.
Discover how diversifying with this strategy can strengthen your portfolio for the years ahead.
Note that investing involves risk. Past performance is not indicative of future returns, and the 3.1x figure reflects a model backtest, not actual fund performance.
Another option for an asset that doesn't move in sync with stocks is crypto. Cryptocurrencies have recently attracted attention for their ability to behave independently of markets at times, though they can also be volatile.
With platforms like Kraken, buying and trading cryptocurrencies is straightforward, whether you're on a desktop or using the mobile app.
You can invest in 600+ cryptocurrencies*, including Bitcoin, Ethereum, Solana, XRP and more, or set up recurring buys to invest automatically.
Kraken also offers tools like price triggers, allowing trades to execute only when the market hits a specific level — helpful for investors who want to manage their entry points.
Designed for active traders, it features a highly customizable interface with real-time market data, advanced tools and detailed order types like stop-loss and take-profit to help manage trades more precisely.
You can start today with just $10. Opening an account is quick, with a simple sign-up and verification process.
** Not investment advice. Crypto trading involves risk of loss. View legal disclosures at* kraken.com/legal/disclosures . The views and opinions expressed in this article are those of the author and do not necessarily represent the views or opinions of Kraken or its management.
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We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.
Business Insider (1), (3); Federal Reserve Bank of St. Louis (2), (4); CNN (5); Investopedia (6); GuruFocus (7); The Buffett Indicator (8); Advisor Perspectives (9)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.