Despite an encouraging upward revision of the U.S. economic growth during its third estimate release, a prominent economist is cautioning that significant risks persist, with stock market valuations reaching levels not seen since the dot-com era.
Mark Zandi, chief economist at Moody’s Analytics, stated that while last week’s annual GDP revisions “put a brighter hue on the economy’s performance,” he warned that recession risks “remain uncomfortably high”.
Recession Risks Remain ‘Uncomfortably High’
While Zandi acknowledged the revised GDP numbers suggest recession risks have “receded,” his overall outlook remains cautious.
He warned that although the economy’s performance and near-term prospects appear far from bleak, the combination of extremely high stock valuations and lingering economic risks presents a fragile picture moving forward.
“Recession risks appear to have receded with the revised GDP numbers, but they remain uncomfortably high,” he said in an X post.
Equity Prices Are Nearing The Peak Of ‘Y2K Bubble’
Zandi’s analysis points to a potential disconnect between the broader economy and soaring equity prices.
His preferred measure of stock valuation—the ratio of the Wilshire 5000 index to after-tax corporate profits—is approaching a historic peak.
“In the past 75 years, this economy-wide price-earnings multiple was only higher in the Y2K bubble,” Zandi noted in a post on X, formerly known as Twitter. He suggested that investors appear to be “getting ahead of themselves”.
BLS Revises Q3 GDP In Its Third Estimate
The concern comes as the Bureau of Economic Analysis (BEA) reported that the nation’s real gross domestic product (GDP) increased at a robust 3.8% annual rate in the second quarter of 2025.
This “third estimate” was a notable increase from the previously reported 3.3%, driven primarily by an upward revision to consumer spending. The report also revised the first quarter’s performance, showing a mild decrease of 0.6%.
The upward revision in second-quarter GDP was primarily fueled by stronger consumer spending and a decrease in imports, which adds to the GDP calculation. From an industry perspective, private goods-producing industries grew by 10.2% and private services-producing industries by 3.5%.
Price Action
The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, fell in premarket on Tuesday. The SPY was down 0.19% at $662.44, while the QQQ fell 0.16% to $597.80, according to Benzinga Pro data.
Read Next:
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo Courtesy: janews on Shutterstock
