It’s easy to be tempted, if you see your retirement account rising with the stock market, to keep glancing at the balance and think the good times will continue.
That could be a mistake, billionaire investor Leon Cooperman thinks.
The former Goldman Sachs executive and creator of Omega Advisors is forecasting a recession in the U.S. at some point in 2027, a slowdown that he thinks would drag equities down with it.
He also believes that earnings expectations on Wall Street are too optimistic and that investors are underestimating inflation and the potential that the hype surrounding artificial intelligence will cool down at some point.
“I think that we’re going to have a recession sometime next year, and that will probably bring the market down,” Cooperman told CNBC.
That’s a really negative call when most of the economic data still appears unexpectedly strong.
But beyond those headline numbers, American homes are sending more mixed signals.
Cooperman sees a disconnect between Wall Street and Main Street
Start with corporate America.
FactSet is forecasting the S&P 500 to report second-quarter earnings growth of 50.4%, its best pace since the second quarter of 2021. A strong 86% of corporations that had reported by Aug. 7 surpassed analysts’ earnings predictions.
Those stats explain why investors continue to be excited.
But there is one essential caveat.
Remove Alphabet (GOOGL) and Amazon (AMZN), and S&P 500 earnings growth falls from 50.4% to 32%. The index’s forward price-to-earnings ratio is also about 20, above its 10-year average of 19.
And expectations aren’t dropping. In fact, analysts actually increased their total third quarter S&P 500 earnings estimate 0.3% in July. Analysts tend to cut estimates in the first month of a quarter, shaving an average of 1.3% over the past decade.
That’s basically the concern Cooperman has with this market: investors aren’t only paying for positive news today. They bet the good news will keep coming in the future.
“The three most dangerous words in the investment land vocabulary are ‘It’s different this time,’” Cooperman said.
The billionaire likened the situation to the ‘Nifty Fifty’ era when investors thought the top growth businesses in America were worth extremely high values before inflation and the 1970s oil shock altered the equation.
Consumers provide the more complicated recession signal
The economy itself does not yet look recessionary.
The Atlanta Fed’s GDPNow model indicated that third quarter real GDP was growing at a 4.3% annualized rate as of August 14.
But a less comfortable picture is emerging from the consumers.
U.S. retail and food-service sales were $763.6 billion in July, down 0.6% from June, the Census Bureau said. Sales, however, were still up 5 percent over a year ago.
That’s an important difference.
Americans are not pulling back. But a family shelling out more at the petrol pump, supermarket shop, and on household costs can get more choosy about where the next dollar goes.
That strain is felt through inflation. The most recent BLS statistics available show consumer prices rising 3.5% year over year in June, while energy costs were up 15.7% and gasoline was up 26.7%. Food-at-home prices increased 2.7%.
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For households, these are not abstract economic numbers.
You pay more for gasoline and less for dining out. A higher grocery expense lets you delay buying a television. Higher rent can mean a trip on a credit card or just skipping this year.
Households also aren’t operating with unlimited financial breathing room. Debt-service payments consumed 11.16% of disposable personal income during the first quarter, Federal Reserve data show.
The data also make a strong case against Cooperman
One more thing that investors should not disregard.
Consumers may be cautious, but they are not uniformly gloomy. The June consumer survey from the New York Fed showed an improved picture of their future finances. The expected odds that stocks will be higher a year from now soared to 40.9%, the highest figure since April 2021.
Spending online is also growing. The U.S. sold $340.2 billion in e-commerce in the second quarter, up 3.8% over the first quarter, according to Census data.
And corporate earnings are doing way better than a recession forecast would suggest.
That is why Cooperman’s warning is fascinating, not inevitable.
Key numbers behind Cooperman’s warning
- 2027: Cooperman’s expected recession window.
- 50.4%: S&P 500 Q2 earnings growth reported by FactSet.
- 20: S&P 500 forward P/E versus a 10-year average of 19.
- 4.3%: Atlanta Fed’s Aug. 14 estimate for Q3 annualized GDP growth.
- $763.6 billion: July U.S. retail and food-service sales.
- -0.6%: Month-over-month change in July retail sales.
- +5%: July retail sales growth from a year earlier.
- 11.16%: Household debt-service payments as a share of disposable income in Q1.
Cooperman is not saying that America is in the recession today. The numbers don’t lie.
He argues investors are paying for something before conditions change.
Usually, a household doesn’t know its budget is tight until the paycheck arrives. It notes that the mortgage, gasoline, groceries, and credit-card payment have all been paid, leaving less left over.
Markets can do the same.
Higher stock prices are more tolerable when earnings are growing and the economy is expanding well. But if inflation remains obstinate, consumers pull back and earnings slow, investors may find they’ve overpaid for tomorrow’s growth at today’s prices.
That doesn’t make Cooperman’s 2027 recession call a sure thing.
That does make his warning harder to ignore.
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