BCM’s research indicates that the U.S. economy is exhibiting signs of underlying stress despite continued optimism in equity markets. While headline indicators suggest stability, structural factors within the labor market and recent macroeconomic trends point toward a more fragile environment.

“We believe the economy is approaching an inflection point. The underlying data is no longer consistent with the market’s prevailing soft-landing narrative.”

The report identifies the labor market as a central area of concern. According to BCM’s analysis, hiring activity in white-collar sectors—including technology, finance, and corporate roles—has remained significantly constrained for nearly two years. This environment has reduced voluntary job turnover and artificially suppressed frictional unemployment, creating headline numbers that may understate actual labor weakness.

BCM also notes a growing backlog of recent graduates who have entered or returned to the job market with limited employment opportunities. Elevated unemployment among workers aged 22–27 suggests mounting pressure that may accelerate in the coming quarters.

Labor gains continue to be concentrated in hospitality, healthcare, education, and skilled trades. However, BCM believes a portion of this growth reflects underemployment and masks deeper structural challenges, including long-term shortages in vocational skills.

While inflation has moderated from its peak, BCM expects renewed upward pressure driven by tariffs, service-sector stickiness, and rising consumer inflation expectations. The firm highlights the uninversion of the 10-year/2-year Treasury spread eight months ago—an historically reliable recession signal—as a critical indicator that cyclical risks are building.

The report references the recent downward revisions in the Atlanta Fed’s GDPNow model, which shifted from –1.5% on February 28 to –2.8% the following week. BCM views these revisions as consistent with broad economic deceleration.

“We believe the economy has been stalled rather than stabilizing. The tariff shock may have been the catalyst that set already-building pressures into motion.”

BCM forecasts that a material decline in equity markets could lead to a contraction in consumer spending, particularly among high-income households whose expenditures are closely correlated with asset performance. Such a decline could force companies to enact cost-cutting measures and layoffs, ultimately driving unemployment higher.

In this scenario, BCM expects the Federal Reserve to respond with more aggressive monetary easing than the 75 basis points currently priced into markets. The report also outlines a risk scenario in which premature rate cuts trigger inflation reacceleration, potentially leading to a period of stagflation.

Given this outlook, BCM advocates a disciplined and defensive positioning.

The firm recommends maintaining elevated liquidity through Treasury bills and money-market vehicles offering yields above 4%. BCM anticipates that a repricing of equities will create opportunities to accumulate high-quality businesses at discounted valuations.

“A return to fundamentals is coming. Periods of dislocation reward investors who combine patience, liquidity, and rigorous analysis.”