RECESSION: A Heightened Risk in 2026?

Posted on December 13, 2025 by Dr. David Edward Marcinko MBA MEd CMP™

By Dr. David Edward Marcinko MBA MEd

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The U.S. faces a heightened risk of recession in 2026, with economic indicators, expert forecasts, and global instability contributing to widespread concern. While some analysts remain cautiously optimistic, the probability of a downturn is significant.

The potential for a U.S. recession in 2026 is a topic of growing concern among economists, policymakers, and investors. According to UBS, the probability of a recession has surged to 93% based on hard data analysis, including employment trends, industrial production, and credit market signals. This alarming figure reflects a convergence of economic stressors that could culminate in a downturn by the end of 2026.

One of the most prominent warning signs is the inverted yield curve, a historically reliable predictor of recessions. When short-term interest rates exceed long-term rates, it suggests that investors expect weaker growth ahead. This inversion, coupled with elevated federal debt and persistent inflationary pressures, has led many analysts to forecast a slowdown in consumer spending and business investment.

Despite these concerns, some sectors—particularly artificial intelligence (AI)—are providing temporary buoyancy. The AI infrastructure boom has fueled GDP growth and market optimism, with global AI investment projected to reach $500 billion by 2026.

However, experts warn that this surge may be masking underlying economic fragility. If AI-driven investment slows, the economy could quickly lose momentum, revealing vulnerabilities in other sectors such as manufacturing and retail.

Global factors also play a critical role. Trade tensions, geopolitical instability, and fluctuating oil prices have created an unpredictable environment. The lingering effects of tariff pass-throughs and policy uncertainty are expected to intensify in 2026, further straining the U.S. economy. Additionally, speculative forecasts—like those from mystic Baba Vanga—have captured public imagination by predicting a “cash crush” that could disrupt both virtual and physical currency systems, although such claims lack empirical support. Not all forecasts are dire. Oxford Economics suggests that while growth will moderate, the U.S. may avoid a full-blown recession thanks to continued investment incentives and robust AI-related spending. Their above-consensus GDP forecast hinges on the assumption that business confidence remains stable and that fiscal policy supports non-AI sectors effectively.

Nevertheless, the risks are real and multifaceted. The Polymarket prediction platform currently estimates a 43% chance of a U.S. recession by the end of 2026, based on criteria such as two consecutive quarters of negative GDP growth or an official declaration by the National Bureau of Economic Research.

In conclusion, while the U.S. economy may continue to navigate “choppy waters,” the potential for a recession in 2026 is substantial. Policymakers must remain vigilant, balancing stimulus with fiscal discipline, and addressing structural weaknesses before temporary growth drivers fade.

The coming year will be pivotal in determining whether the U.S. can steer clear of recession or succumb to the mounting pressures.

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DAILY UPDATE: US Economic Prognostications as Stock Markets Surge

Posted on November 15, 2023 by Dr. David Edward Marcinko MBA MEd CMP™

By Staff Reporters

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US Economic leaders are looking to the past for some inspiration on how to deal with the present—the only issue is, no one seems to be able to agree which past era they should be studying. But, predictions diverge, for example.

  1. Deutsche Bank believes the U.S. economy closely resembles the turbulent times of the 1970s, an outlook prompted by the war in Israel, oil shocks, and rampant inflation.
  2. Meanwhile economists at the White House say the inflationary period after World War II acts as a better guide because pent-up demand from the pandemic will eventually fade away.
  3. UBS disagrees with both, saying the 1990s more closely resembles the economic climate world leaders are currently attempting to navigate. A note from the UBS Chief Investment Office, led by Jason Draho, questioned whether the 2020s would act as “another roaring 20s” seen a century before. During this period, technological advances led to a rapid increase in productivity, while major industries like automotive, film and chemicals took off. The data suggests today’s economy has officially entered a new regime, UBS outlined: “A regime is defined by its growth, inflation, and rate attributes. These are all at their highest levels since prior to the global financial crisis (GFC).”

Here is where the major benchmarks ended:

  • The S&P 500 Index was up 84.15 points (1.9%) at 4,495.70; the Dow Jones Industrial Average (DJI) was up 489.83 points (1.4%) at 34,827.70; the NASDAQ Composite (COMP) was up 326.64 points (2.4%) at 14,094.38.
  • The 10-year Treasury note yield (TNX) was down about 18 basis points at 4.453%.
  • CBOE’s Volatility Index (VIX) was down 0.60 at 14.16.

The small-cap focused Russell 2000 Index (RUT), which has lagged large-cap benchmarks for most of the year, jumped more than 5% Tuesday. Small-caps are often seen as being more exposed to the economic cycle and had suffered because of concerns that high interest rates could push the economy into recession.

Other interest rate-sensitive sectors, such as real estate, materials, and utilities, also saw outsize gains.

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DAILY UPDATE: Stocks Down Again but Pickleball is Up!

Posted on June 27, 2023 by Dr. David Edward Marcinko MBA MEd CMP™

By Staff Reporters

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The NASDAQ and S&P 500 fell to two-week lows, adding to last week’s declines, as investors continued to digest hawkish Fed comments and recession risks.

Here is where the major benchmarks ended today:

  • The S&P 500 Index was down 19.51 points (0.5%) at 4,328.82; the Dow Jones Industrial Average (DJIA) was down 12.72 points at 33, 714.71; the NASDAQ Composite was down 156.74 points (1.2%) at 13,335.78.
  • The 10-year Treasury note yield (TNX) was down about 2 basis points at 3.714%.
  • CBOE’s Volatility Index (VIX) was up 0.77 at 14.21.

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UnitedHealth Group related more people were using the healthcare system (bad news for insurers), and no one exactly knew why. Then yesterday, the sleuths at UBS published a note with a clever hypothesis: Rising healthcare utilization rates could be fueled by…pickleball injuries.

UBS calculated that the game’s surging popularity—among seniors, in particular—will contribute $377 million in medical costs this year for procedures like hip replacements and knee surgeries, Bloomberg reported.

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DAILY UPDATE: Easter Sunday Market Wrap-Up

Posted on April 9, 2023 by Dr. David Edward Marcinko MBA MEd CMP™

By Staff Reporters

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According to the Financial Times, just 20 stocks account for almost 90 per cent of the US benchmark index’s $2.36tn gains so far this year, as instability in the banking sector has driven down interest rate expectations and boosted the attraction of Big Tech.

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Among the big gainers, shares in chip-maker Nvidia have climbed by 83 per cent so far this year, while Facebook owner Meta is up 76 per cent and Salesforce has climbed 42 per cent, underlining the heavy concentration in the world’s most influential stock market. The market value of those and the other 17 best performing stocks in the S&P 500 have surged by $2.05tn in 2023. Apple’s valuation alone has shot up by almost $600bn, or 30 per cent, in the past three months.

And, according to Yahoo Finance, the market capitalization of the other stocks in the index — which is up almost 7 per cent so far in 2023 — has risen just $320bn over the same period.

Finally, according to private equity firm Apollo Global Management and ignoring gains for mega-cap growth stocks, the S&P 500 rose just 1.4 per cent in the first three months of 2023, said UBS.

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Bank Deals Similar to Goldman Sach’s Gone Awry

Posted on April 21, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

Other Major Banks Participated, Too?

By Marian Wang, ProPublica – April 16, 2010 1:36 pm EDT

As you may have heard, or read on this ME-P, Goldman Sachs is being sued for fraud [1] by the Securities and Exchange Commission [2] for allegedly misleading investors about a deal that Goldman helped structure and sell. In the civil suit, the SEC specifically faulted Goldman for failing to disclose that a hedge fund was helping create the investment while betting big the deal would fail.

According to the SEC, Goldman Sachs knew about the hedge fund’s bets, knew it played a significant role in choosing the assets in the portfolio, and yet did not tell investors about it. (Goldman Sachs has called the SEC’s accusations “completely unfounded in law and fact.” And in another more detailed statement [3], it said it “did not structure a portfolio that was designed to lose money.”) 

[picapp align=”none” wrap=”false” link=”term=Goldman+Sachs&iid=8541566″ src=”0/4/f/8/The_Goldman_Sachs_7d6f.jpg?adImageId=12513388&imageId=8541566″ width=”380″ height=”568″ /]

In ProPublica

As we reported at ProPublica last week, many other major investment banks were doing a similar thing [4].

Investment banks including JPMorgan Chase [5], Merrill Lynch [6] (now part of Bank of America), Citigroup, Deutsche Bank and UBS also created CDOs that a hedge fund named Magnetar was both helping create and betting would fail. Those investment banks marketed and sold the CDOs to investors without disclosing Magnetar’s role or the hedge fund’s interests.

Here is a list of the banks that were involved [7] in Magnetar deals, along with links to many of the prospectuses on the deals, which skip over Magnetar’s role. In all, investment banks created at least 30 CDOs with Magnetar, worth roughly $40 billion overall. Goldman’s 25 Abacus CDOs — one of which is the basis of the SEC’s lawsuit — amounted to $10.9 billion [8].

One reporter Jake Bernstein explained the investment banks’ disclosure failures on Chicago Public Radio’s This American Life [9]:

On the Magnetar Hedge Fund

The role of Magnetar, both as equity investor and in their bets against the very CDOs they helped create were not disclosed in any way to investors in the written documents about the deals. Not the marketing materials, not the prospectuses, not in the hundreds of pages that an investor could get to see information about the deal was it disclosed that it was in fact Magnetar who’d helped create the deal, and who’d bet against.

That is, of course, along the lines of what the SEC is suing Goldman Sachs for now. The SEC’s suit also says CDOs like the ones Goldman built “contributed to the recent financial crisis by magnifying losses associated with the downturn in the United States housing market.”

Notably, the SEC did not sue the hedge fund [10] involved in Goldman’s Abacus deals — Paulson & Co. — or its manager, John Paulson. Instead, it’s going after Goldman. And as we pointed out in our reporting, there’s no evidence that what Magentar did was illegal [11].

Assessment

We’ve called the major banks involved in Magnetar CDO deals to see if they were concerned about similar lawsuits. Thus far, Bank of America, Citigroup, Deutsche, Wells Fargo (which bought Wachovia) and UBS have responded and have all declined our requests for comment. Here is Magnetar’s response [12] to our original reporting.

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How One Hedge Fund Helped Keep the Bubble Going

Posted on April 16, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

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On the Magnetar Trade

By Jesse Eisinger and Jake Bernstein, ProPublica – April 9, 2010 1:00 pm EDT

In late 2005, the booming U.S. housing market seemed to be slowing. The Federal Reserve had begun raising interest rates. Subprime mortgage company shares were falling. Investors began to balk at buying complex mortgage securities. The housing bubble, which had propelled a historic growth in home prices, seemed poised to deflate. And if it had, the great financial crisis of 2008, which produced the Great Recession of 2008-09, might have come sooner and been less severe.

Precise Timing

At just that moment, a few savvy financial engineers at a suburban Chicago hedge fund [1] helped revive the Wall Street money machine, spawning billions of dollars of securities ultimately backed by home mortgages.

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When the crash came, nearly all of these securities became worthless, a loss of an estimated $40 billion paid by investors, the investment banks who helped bring them into the world, and, eventually, American taxpayers.

Yet the hedge fund, named Magnetar for the super-magnetic field created by the last moments of a dying star, earned outsized returns in the year the financial crisis began.

The Magnetar Trade

How Magnetar pulled this off is one of the untold stories of the meltdown. Only a small group of Wall Street insiders was privy to what became known as the Magnetar Trade [2]. Nearly all of those approached by ProPublica declined to talk on the record, fearing their careers would be hurt if they spoke publicly. But interviews with participants, e-mails [3], thousands of pages of documents and details about the securities that until now have not been publicly disclosed shed light on an arcane, secretive corner of Wall Street.

According to bankers and others involved, the Magnetar Trade worked this way: The hedge fund bought the riskiest portion of a kind of securities known as collateralized debt obligations — CDOs. If housing prices kept rising, this would provide a solid return for many years. But that’s not what hedge funds are after. They want outsized gains, the sooner the better, and Magnetar set itself up for a huge win: It placed bets that portions of its own deals would fail.

Chance Enhancement

Along the way, it did something to enhance the chances of that happening, according to several people with direct knowledge of the deals. They say Magnetar pressed to include riskier assets in their CDOs that would make the investments more vulnerable to failure. The hedge fund acknowledges it bet against its own deals but says the majority of its short positions, as they are known on Wall Street, involved similar CDOs that it did not own. Magnetar says it never selected the assets that went into its CDOs.

Magnetar says it was “market neutral,” meaning it would make money whether housing rose or fell. (Read their full statement. [4]) Dozens of Wall Street professionals, including many who had direct dealings with Magnetar, are skeptical of that assertion. They understood the Magnetar Trade as a bet against the subprime mortgage securities market. Why else, they ask, would a hedge fund sponsor tens of billions of dollars of new CDOs at a time of rising uncertainty about housing?

Key details of the Magnetar Trade remain shrouded in secrecy and the fund declined to respond to most of our questions. Magnetar invested in 30 CDOs from the spring of 2006 to the summer of 2007, though it declined to name them. ProPublica has identified 26 [5].

Independent Analysis

An independent analysis [6] commissioned by ProPublica shows that these deals defaulted faster and at a higher rate compared to other similar CDOs. According to the analysis, 96 percent of the Magnetar deals were in default by the end of 2008, compared with 68 percent for comparable CDOs. The study [6] was conducted by PF2 Securities Evaluations, a CDO valuation firm. (Magnetar says defaults don’t necessarily indicate the quality of the underlying CDO assets.)

From what we’ve learned, there was nothing illegal in what Magnetar did; it was playing by the rules in place at the time. And the hedge fund didn’t cause the housing bubble or the financial crisis. But the Magnetar Trade does illustrate the perverse incentives and reckless behavior that characterized the last days of the boom.

Major Players

Magnetar worked with major banks, including Merrill Lynch, Citigroup, and UBS. At least nine banks helped Magnetar hatch deals. Merrill Lynch, Citigroup and UBS all did multiple deals with Magnetar. JPMorgan Chase, often lauded for having avoided the worst of the CDO craze, actually ended up doing one of the riskiest deals with Magnetar, in May 2007, nearly a year after housing prices started to decline. According to marketing material and prospectuses [5], the banks didn’t disclose to CDO investors the role Magnetar played.

Many of the bankers who worked on these deals personally benefited, earning millions in annual bonuses. The banks booked profits at the outset. But those gains were fleeting. As it turned out, the banks that assembled and marketed the Magnetar CDOs had trouble selling them. And when the crash came, they were among the biggest losers.

Assessment

Of course, some bankers involved in the Magnetar Trade now regret what they did. We showed one of the many people fired as a result of the CDO collapse a list of unusually risky mortgage bonds included in a Magnetar deal he had worked on. The deal was a disaster. He shook his head at being reminded of the details and said: “After looking at this, I deserved to lose my job.”

Magnetar wasn’t the only market player to come up with clever ways to bet against housing. Many articles and books, including a bestseller by Michael Lewis [7], have recounted how a few investors saw trouble coming and bet big. Such short bets can be helpful; they can serve as a counterweight to manias and keep bubbles from expanding.

Magnetar’s approach had the opposite effect — by helping create investments it also bet against, the hedge fund was actually fueling the market. Magnetar wasn’t alone in that: A few other hedge funds also created CDOs they bet against. And, as the New York Times has reported, Goldman Sachs did too. But Magnetar industrialized the process, creating more and bigger CDOs.

Conclusion

Several journalists have alluded to the Magnetar Trade in recent years, but until now none has assembled a full narrative. Yves Smith, a prominent financial blogger who has reported on aspects of the Magnetar Trade, writes in her new book, “Econned,” [8] that “Magnetar went into the business of creating subprime CDOs on an unheard of scale. If the world had been spared their cunning, the insanity of 2006-2007 would have been less extreme and the unwinding milder.”

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Stock Broker Report Card Survey

Posted on October 19, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

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Doctor – Does your Broker Make the Grade?

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Dear Colleagues,

Does your stock-broker or brokerage firm make the grade?

Be sure to participate in the annual broker report cards survey. And, if you work for Merrill Lynch, UBS, Morgan Stanley Smith Barney, Wells Fargo Advisors or Edward Jones, this trade magazine [Registered Rep] survey is for you.

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