Investors are ‘getting ahead of themselves' warns Moody's top economist

Core Insights - Mark Zandi, chief economist at Moody's Analytics, warns that market valuations are nearing levels seen during the Dot-com bubble, indicating potential overvaluation in the stock market [1][2] - The current rally is driven more by investor enthusiasm rather than fundamental economic indicators, raising concerns about an overheated market [2][5] - Zandi highlights that while artificial intelligence contributes to optimism, historical parallels to past market manias should not be overlooked [5] Economic Indicators - Revised U.S. GDP data shows stronger consumer spending, primarily from affluent households, but this is closely linked to rising asset values [1][2] - Zandi's preferred measure, the ratio of the Wilshire 5000 to after-tax corporate profits, is at historic highs, only surpassed once in the last 75 years during the Y2K bubble [2] - Despite signs of resilience in recent data, Zandi warns that the same factors driving growth could destabilize if market sentiment shifts [9] Consumer Behavior - A potential correction in stock prices could lead wealthy consumers to reduce spending, which may threaten overall economic momentum [6] - Zandi describes the current economic environment as a "jobs recession," with weakening payroll growth and several states experiencing contraction [7] Economic Risks - Zandi estimates that nearly one-third of the U.S. economy is already in recession or at high risk, while another third is stagnating [9] - He emphasizes uneven regional performance and inflation pressures that could worsen, alongside a strained housing market [9] - The economist assesses a nearly 50% chance of a downturn occurring within the next year [6]