Are U.S. stock markets ‘whistling past the graveyard?’ Stifel takes a close look at the great American ‘money illusion’
A question looms over Wall Street as it digests the stock-market highs in the dog days of summer 2025: is this another version of the dotcom bubble? Apollo’s Torsten Slok has already calculated that the top 10 S&P 500 companies today are more overvalued than in the late ’90s tech boom. Now the investment bank Stifel is predicting that even as “euphoric markets party like it’s 1999,” a stock market correction and stagflation are ahead.
Stifel’s strategists, led by Barry Bannister and Thomas Carroll, wrote in a research note that they are simply “uncomfortable” with the S&P 500 gaining 32% off its April 7 intraday low as the latest GDP figures show the actual economy slowing almost to a crawl. They further warn that “hopium” is a powerful drug and that stock markets may be “whistling past the graveyard.”
Simply put, Bannister and Carroll say consumers are not as rich as their account balances show, following the “money illusion” of COVID-era fiscal stimulus that they described as a “World War-level” effort.
With the mighty American consumer running out of breath amid an economic slowdown in the second half of 2025, Stifel sees a decline of 10% or more in the S&P 500.
Real economic pain is brewing
According to Stifel, the apparent health of the U.S. consumer belies an underlying slowdown, with personal consumption—responsible for 68% of GDP—showing effectively 0% growth year-to-date. Their research highlights several red flags.
They note that growth in real wage income, the main driver of personal consumption, has slowed to an annual rate of just 1% as stagflation hits.
In addition, monetary and fiscal policies are in a “tug-of-war” that counteract each other, resulting in a minimal boost to consumer spending.
And unlike in 2022-23, there is significantly less consumer savings to support consumption.
About that money illusion: Stifel’s data shows that from September 2019 to March 2022, household cash balances increased 44%, while consumer spending doubled against the historic median. Bannister and Carroll argue that the illusion kept spending afloat and helped drive asset prices upward but it’s now fading after the “helicopter dump” of cash in the early 2020s.
The tell here, they say, is that savings rates have come back into balance with equity net worth, after a period when excess money moved first through consumption, then assets. Put another way, America is essentially cash-poor.
What’s more, Stifel’s calculation shows that the personal savings rate has fallen dramatically since COVID, so Americans have binged on spending and now have less cash on hand than in the years before the pandemic.
The analysts warn that this shows the artificial boost has waned and there is no apparent new source of household spending power, amid persistent fiscal deficits and tariffs.
Bank of America Research has likewise cited tariffs as it maintained its call for stagflation instead of recession.
Correction coming?
The Federal Reserve has been left in a “too late” posture from stagflation, as the rate cuts that Trump keeps calling for can’t save an “overvalued” S&P 500, with inflation proving sticky and supply constrained in the economy.
While the capex boom around AI temporarily supports GDP and asset prices, Stifel forecasts this bump will fade as corporate tech spending plateaus. Such a build-out, after all, occurs only once, while consumer spending power is entering a lull that could expose markets to abrupt correction, they write.
Valuations have ballooned—Stifel notes the S&P 500 hit 6,375 and the NASDAQ 100 reached 23,587 earlier this month. Yet history shows that momentum can turn on a dime; “Valuation doesn’t matter until it does,” the analysts warn, citing the Great Depression of 1929, the dotcom boom of 1999, and the post-COVID atmosphere of 2021. They forecast a more than 10% selloff beckoning for the S&P 500.
An explanation for a ‘weird’ feeling?
Stifel’s bearish prediction, echoing Bank of America, may offer an explanation for a “weird” feeling permeating the economy. Nick Maggiulli, COO of Ritholtz Wealth Management and author of the New York Times bestseller The Wealth Ladder, previously spoke to Fortune about the odd state of the economy in 2025 and concluded that “something weird’s going on.”
Maggiulli, whose book focuses on what his research indicates about the emerging six economic classes of the U.S., said “the economy wasn’t built to handle this many people with this much money.” He cited data showing that the upper middle class, with household net worths between $1 million and $10 million, have ballooned from just 7% of the country in 1989 to 18% as of 2022/23, with much of this run-up in wealth occurring since the pandemic.
UBS Global Wealth Management has similarly documented a dramatic rise in the “everyday millionaire,” with a fourfold increase on a global basis since the start of the 21st century. Even after adjusting for inflation, their number has more than doubled in real terms since 2000. “There’s a good portion of [everyday millionaires] that feel like they don’t have enough,” Maggiulli told Fortune, “and they feel like they’re just getting by, even though statistically they’re in the top 20% of U.S. households.”
