THE US economy going into recession “would be the straw that breaks the UK’s back”, experts have warned.
US stocks fell, Asian shares sank and Bitcoin fell to a seven-month low following the US Federal Reserve Board of Governors member Christopher Waller’s stark warning of redundancies at an “eye-popping” scale across major US firms.
Computer chip giant Nvidia, at the centre of the craze over AI and due to report its earnings on Wednesday, pulled US stocks lower.
Fears that stock prices of such companies have shot too high have worried world markets recently – while also hanging over the markets is the release, due Thursday, of US employment data.
James Chu, Founding Director at Wisbech-based Tricio Investment Advisors, warned the market may get worse.
He continued: “The fall in shares on Monday reflects growing concerns over the valuation of key tech shares in the US. The boost that positive AI sentiment has given to large cap US shares since April has been incredible.
“We share investor concerns about valuations being stretched at the moment though. The market may pullback further over the year-end window dressing period as fund managers could lock-in some of the gains seen so far this year.
“The Fed’s meeting next month may also be in focus as bets on another 25 bp rate cut being a ‘sure thing’ could be reappraised if economic data remains mixed as the labour market is in a ‘no hire, no fire’ stalling pattern but economic activity remains relatively strong.”
Chris Barry, Director at London-based Thomas Legal, said the already struggling UK economy will be affected if the US struggles.
He said: “The US going into recession would be the straw that breaks the UK’s back, for sure. The US however are turning the tide on Quantitative Tightening and starting Quantitative Easing.
“They will print themselves out of default and recession as they have done throughout most of history since leaving the gold standard. As the world reserve currency, it has to remain strong given the overwhelming demand.”
Riz Malik, Director at Southend-on-Sea-based R3 Wealth, said the market is wobbling.
He added: “Is the AI bubble about to burst? That is the market’s concern and has been for some time. Michael Burry, the veteran hedge fund manager who predicted the 2008 crash, is betting against AI and with recent economic data it could suggest the market has no reason to be as buoyant as it is.
“Given this bubble has been driving recent gains, fuelled by AI heavyweights such as Nvidia, an adjustment may be on the cards. Their soon to be released earnings will be an indicator of things to some.”
Prem Raja, Head of Trading Floor at Currencies 4 You, said the market fears a recession.
He added: “Markets are currently trading on recession fears rather than inflation risks. Waller’s warning about large-scale redundancies has rattled sentiment because it hints that corporate America is preparing for a deeper downturn.
“That has triggered a broad risk-off move across equities and even Bitcoin, which often trades like a high beta asset.
“There is also growing concern that certain aspects of the AI trade are overvalued. Peter Thiel’s fund selling down its Nvidia stake has amplified concerns that the sector may be priced for perfection at a time when growth is slowing.
“With Nvidia reporting earnings on Wednesday, we expect significant volatility. Investors are reassessing earnings expectations, credit conditions and the Fed’s path, and the worry is that weakening labour demand feeds into softer spending and slower growth from here.”
David Belle, Founder and Trader at Fink Money, predicts the market will spring back.
He continued: “I don’t believe there to be recession risk even though job vacancy data is in a downtrend, but what I do think has significance now is uncertainty surrounding the US interest rate decision in December and also the big black hole of no reporting on jobs due to the government shutdown.
“In combination with this, the largest stock in the SP500 reports this week, Nvidia, and so many are being more cautious in case the market drops if earnings are bad.
“However, if Nvidia earnings are good, the market is likely to spring right back up. It’s a natural part of the cycle, but with US growth at 3.8%, recession is very much far off.
“If we consider that many of these jobs are being shed due to AI actually bolstering firms’ productivity, we get into a situation where the stock market firmly does not reflect the economy, because business margins are either being at least maintained or improved with the introduction of AI processes.”
Scott Gallacher, Director at Leicester-based Rowley Turton, advised investors to hold.
He added: “After such a strong run, a market pull-back was always likely. As a result, this wobble is no reason for long-term investors to panic. The latest volatility follows Fed Governor Christopher Waller’s warning about ‘eye-popping’ levels of US job cuts, which has understandably rattled markets.
“These redundancies reflect weaker demand, cost pressures and, in some sectors, the shift toward automation and AI. Could this spark a global recession? It’s a risk, but far from a certainty.
“For most long-term investors the best course remains the same: sit tight — it’s time in the market, not timing the market. What’s especially interesting is Bitcoin’s sharp fall.
“In theory, if it were truly a ‘safe haven’, it should rise when fear enters the market. Instead, it’s fallen harder than equities, underlining that Bitcoin still behaves as a high-risk, speculative asset — not the defensive store of value some claim.”
Clive Bonny, MD at Strategic Management Partners, said the effect of the tariffs will hit the US economy early next year.
He continued: “Major investors are following Warren Buffett into cashing out. Buffett has been clear that USA stocks have been riding high by piggy backing on overpriced AI stocks. These major AI stocks show no evidence of Return on Investment (ROI) and have distorted the entire market pricing.
“Additionally the full negative impact of USA global tariffs will be hitting the USA balance sheet in 2026. The USA’s main trade partner Canada is now divorcing USA in tourism, energy, raw materials and manufacturing, diversifying into Asia, China and Europe. Canada-UK trade is up 68% this year.
“These new supply chains are not returning to USA for years, if ever. USA isolationist economic policies have backfired badly and the 77 million voters for Trump have created a perfect storm.”
Dariusz Karpowicz, Director at Doncaster-based Albion Financial Advice, said Bitcoin’s plummeting price is indicative.
He added: “Bitcoin dropping like a stone rather proves it’s not the safe haven some claim. Markets correcting after months of euphoria shouldn’t shock anyone, yet here we are with recession fears everywhere. The truth is simpler. US growth sits at 3.8%, hardly recession territory.
“Yes, companies are cutting jobs, but mostly through automation, not collapsing demand. This week’s tech earnings will matter more than Fed governors’ warnings.
“Valuations got silly, particularly in AI stocks promising riches without profits. Now reality bites. Global recession? Not from this correction alone. Watch what companies report, not daily price swings. Your portfolio needs patience, not panic.”
