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Introduction: Threats facing the Golden Age
Over the past decade, the US stock market has performed as unstoppable as a beast, bringing amazing returns and has almost never stopped.Since August 2010, the S&P 500 has soared 487%, turning the wealth of ordinary investors into jaw-dropping wealth.The only significant decline occurred in 2022, when the market fell 25% due to the Fed’s aggressive rate hike and 10% inflation rate, but it was only a brief twist.By 2024, the market has returned to its historical highest point, easily getting rid of the global epidemic, out-of-control inflation and the fastest rate hike cycle in history.However, under this bright and beautiful appearance, a storm is brewing.Experts sounded the alarm, pointing out macro fundamentals and hidden forward-looking indicators that the U.S. economy is on the brink of a bubble — a recession that could trigger a bubble burst is approaching.
This article’s analysis delves into the latest economic indicators, expert opinions and industry-specific trends in 2025, revealing why market fanaticism may soon give way to sobering reality.
Macro warning signal: no matter how you name it, it is a bubble
Buffett indicator: the red flag at all-time highs
One of the most obvious signs of a market bubble is the Bufate indicator, which compares the total market value of the U.S. stock market with national GDP.This indicator, endorsed by Warren Buffett himself, provides a simple measure of whether stocks are overvalued relative to economic output.As of August 2025, the Bufart indicator based on the Wilshire 5000 index reached an unprecedented 210%, surpassing the peak before the Great Recession in 2007 and far exceeding about 140% at the peak of the Internet bubble in 2000.
This number is a grim warning.Historically, if the Bufate indicator exceeds 100%, it means that the market is overvalued, and if it exceeds 150%, it will enter the bubble field.The 210% level means that market pricing assumes that corporate profits and economic growth will continue at an alarming rate indefinitely—a assumption that goes against the laws of economic cycles.Critics may argue that a modern economy powered by tech giants and intangible assets can support higher valuations.However, even with these changes in mind, the valuation levels are more than doubled than the historical average, indicating a disconnect between Wall Street’s fanaticism and the reality of Main Street.
CAPE ratio: 150 years perspective
Supplementing the Buffett metric is the cyclical adjusted price-to-earnings ratio (CAPE ratio), also known as the Schiller Ratio, which assesses whether a stock is overvalued by smoothing out a decade of corporate earnings.As of August 2025, the CAPE ratio reached 38.6, the second highest point in its 154-year history, second only to 44.0 during the 2000 Internet bubble.This indicator reveals the real valuation of the market by adjusting inflation and averaging ten-year profits.The CAPE ratio of 38.6 is more than twice the historical average of 17, indicating that there is little room for error in stock prices’ perfect expectations of economic performance.
The historical reliability of the CAPE ratio makes it difficult to ignore.Over more than 150 years of history, it has always accurately marked overestimation before major market adjustments.For example, in 2000, the peak of this ratio predicted a 50% collapse in the S&P 500; in 2007, the reading of 27 predicted a 57% plunge during the Great Recession.Today’s levels show that stocks have high hopes for unsustainable earnings growth, and there is little room for maneuver if the economy deteriorates.
Other valuation indicators: a consistent voice of caution
In addition to the Buffett indicator and CAPE ratio, other indicators further amplify the bubble’s narrative.The S&P 500 has a price-to-earnings ratio at an all-time high, and its dividend yield is close to historic lows, indicating that investors have paid a high premium for a meager income return.Furthermore, the market’s reliance on a handful of tech giants—the so-called “Big Seven”—has pushed concentrated risk to its highest level in decades, recalling the technology boom in the Internet era.Together, these indicators paint a picture of the market being separated from fundamentals, driven by momentum and optimism rather than sustainable growth.
Forward-looking indicators: cracks in the foundation
While macro indicators shout overestimate, forward-looking indicators show that the economy has begun to collapse under pressure.These signals are often obscured by headline GDP data and corporate earnings exceeding expectations, but they point to a slowdown that could trigger a market crash.
Freight Recession: Canaries in Coal Mine
The freight and logistics industries are the weather vane of economic activity and are currently in a full-scale recession.As of August 2025, the S&P Transport Selection Industry Index fell 43% from its peak, with share prices of major companies such as UPS and FedEx plummeting 62% and 36% from recent highs, respectively.This is not just a brief fluctuation—it is a systematic signal of a decline in demand.The decline in cargo transportation in the supply chain shows that consumer and industrial activity is weakening, in stark contrast to the S&P 500 hitting record highs.
FreightWaves’ Craig Fuller warned back in April 2025 that freight volumes had fallen to pandemic-era lows and the industry was on the verge of collapse.This forecast has come true, and freight companies are facing increasing bankruptcy.Apollo Global Management’s April 2025 report “Voluntary Trade Reset Slowdown” pointed out that April 2 – the day Trump’s tariffs came into effect – is the catalyst for this slowdown.Although early imports temporarily masked the slowdown, data from August 2025 showed that port traffic had dropped sharply, confirming that the peak season had ended.The dilemma of the freight industry is a leading indicator of weak commodity economy, undermining the claim that the economy is strongly recovering.
Retail Struggle: Consumers are in trouble
Retail, another key economic pillar, is also sending warning signals.Target’s share price plummeted 61% from its peak and fell 28% in just one year in 2025, reflecting a general weakness in consumer spending.Other retailers such as Adidas (down 18%) and Under Armour (down 36%) are also struggling, earnings are barely meeting lower expectations set during peak tariff pressures.Walmart, a weather vane for consumer spending, recently warned of a slowdown in 2025, mentioning tariff-related costs and consumer prudence.
Consumer spending accounts for about 70% of U.S. GDP and is currently under pressure.The University of Michigan’s consumer confidence index plummeted to 57.9 in March 2025, down 10.5% monthly, indicating that confidence is eroding.Although retail sales increased year-on-year, they fell by nearly 1% from December 2024 to January 2025, a drop of more than economists expected.Soft demand combined with rising bankruptcy – the number of U.S. bankruptcies reached a 14-year high in 2025 – suggests consumers are struggling by inflation and policy uncertainty.
Tariff turmoil: The impact of policy
The tariffs imposed by President Trump in early 2025 targeted Canada, China and Mexico, triggering retaliatory measures that disrupted supply chains and pushed up costs.The Atlanta Federal Reserve Bank’s GDPNow model estimates that GDP annualized declines by 2.8% in the first quarter of 2025, in sharp contrast to the 2.3% growth in the fourth quarter of 2024.Morningstar’s third-quarter 2025 outlook pointed out that tariffs lowered the real GDP growth forecast for 2025-2026 by 0.7%, while inflation forecasts rose by 1.6% during the same period.
Tariffs have also exacerbated market volatility.The S&P 500 has erased all post-election gains by March 2025, losing $3.3 trillion in value since February 19.The Dow Jones Industrial Average fell more than 600 points overnight, and the dollar fell to a three-month low as investors prepared for a weak economy.These disturbances highlight how policy uncertainty amplifies economic vulnerability and pushes already overvalued markets to the edge.
Expert Voice: A Worry Chorus
Economists and strategists are increasingly outspoken in warning about the risk of recession.Paul Dietrich of B. Riley Wealth Management warned that the S&P 500 could plummet 48%-49% if valuations are normalized and recession hit, referring to the readings of the Bufate indicator above 180% and other overestimates.Moody’s analysis believes that the economy is “on the brink of recession” and is driven by tariffs and restricted immigration policies, resulting in stagflation.Polymarket traders estimate the likelihood of a 40% recession in 2025, up from 20% a month ago, reflecting the growing market uneasiness.
The Leading Economic Index (LEI) of the Conference Committee, although no longer foreshadows an upcoming recession, is still declining, falling 0.3% to 101.5 in January 2025.However, the six-month annualized changes in LEI have narrowed, indicating a slowdown rather than an immediate collapse.JPMorgan Chase expects the probability of a recession by the end of the year to be 35%-45%, while Goldman Sachs estimates it to be 15%-20%.These different forecasts reflect a mixed signal of the economy: resilience in areas such as the labor market (4.2% unemployment rate in July 2025), but increasingly weak in areas such as consumer confidence and freight.
Refutation: Is this different?
Bubble theory skeptics believe that the economy has undergone fundamental changes.The dominance of tech giants, with their high profit margins and global influence, may provide justification for high valuations.An AI-driven productivity gains and service-oriented economy may continue to drive growth, as some X posts suggest.In addition, the labor market remains relatively strong, with job openings stable, with the Sahm recession index in February 2025 at 0.27, below the 0.50 threshold that triggers the recession signal.
The housing market has also shown resilience.House prices rose by 4% year-on-year in the first quarter of 2025, contrary to the pattern of falling house prices before the recession.The Fed hinted that it would cut interest rates in the third quarter of 2025 – Morningstar expects 10-year Treasury yields to fall to 3.25% by 2028 – could further stimulate growth.These factors suggest that the economy may avoid a collapse, and valuations reflect a new normal rather than a bubble.
However, these arguments appear powerless under the weight of historical data.The 150-year record of the CAPE ratio and the 50-year consistency of the Buffat indicator are hard to deny.Even if technology-driven growth justifies higher valuations, there is little room for error for the extreme levels of the 210% Bufate metric and the 38.6 CAPE ratio.Freight recession, retail dilemma and tariffs are not abstract indicators, but concrete signs of economic dilemma that could trigger a wider recession.
Outlook for the future: Winter and future in 2025
As the winter of 2025 begins, the US economy is at a crossroads.Macro fundamentals – Bufate metrics 210%, CAPE ratio 38.6 – shouting bubbles, while forward-looking indicators such as freight, retail and bankruptcy show that the economy is shaking on the edge.The 2.1% decline in the S&P 500 in 2025 masks a deeper vulnerability, and industries such as logistics and retail are already in trouble.Tariffs, policy uncertainty and a decline in consumer confidence magnifies these risks, with annual GDP growth expected to be only 1.7%-2.4%.
The coming months are crucial.If freight bankruptcy accelerates, retail earnings are disappointing, or consumer spending collapses, market overvaluations may quickly collapse.As Dietrich predicts, the 48%-49% collapse of the S&P 500 will erase trillions of dollars of wealth and pull valuations back to historical benchmarks.Instead, the Fed’s interest rate cut or easing trade tensions may win time and delay the inevitable collapse.But history shows that the bubble won’t subside gently—once it breaks, the consequences will be rapid and severe.
Conclusion: Be prepared for inevitable
The golden age of the U.S. stock market is an extraordinary journey, but the signs of bubbles cannot be ignored.The Bufate indicator and CAPE ratio, supported by decades of data, points to historic overestimation.Forecast indicators such as freight collapse, retail woes and tariff-driven volatility reveal the breakdown on the economic edge.Although optimists are counting on soft landings, the disconnect between Wall Street’s highs and Main Street’s struggles is obvious.Investors should take these warnings seriously, diversify their portfolios and prepare for turmoil.The winter of 2025 may mark the end of the golden age—or the beginning of a painful reckoning.
