UBS: Investors should prepare for the U.S. to AVOID a recession!

While the consensus on Wall Street is that the U.S. will enter a recession this year, Jason Draho, Head of Asset Allocation Americas, UBS Global Wealth Management, is asking today, “[w]hat if the US economy doesn’t actually slow much because of tariffs or become stagflationary?”

Draho highlights that a few years ago, when a recession was the consensus, it turned out to be “quite wrong.”

The strategist notes that last week’s GDP report “rhymed with history in ways that are a reminder to have humility when forecasting the economy.”

“Almost exactly three years ago the first release of 1Q22 US GDP was -0.3%, yet just days later April 2022 nonfarm payrolls were released showing they grew 428k, beating estimates by 48k,” Draho commented. “Fast-forward to last week, the first estimate of 1Q25 GDP was -1.4%, while two days later April payrolls came in at 177k, 39k above consensus.”

He notes that in both 1Q22 and 1Q25, GDP data were skewed by supply shocks—first from over-ordering amid supply chain fears, now from tariff front-running. Despite this, the labor market stayed strong.

While recent strong data may be backward-looking—and tariffs could still bite—Draho reminds investors that in 2022, recession fears grew as the Fed hiked and SVB collapsed. Yet the economy still rose 2.85% in 2023 and 2024. “So it would also be a mistake now to dismiss the possibility that US growth will remain resilient and defy stagflation expectations,” he states.

Whether the U.S. can keep dodging recession depends on what’s still working. From 2022–24, strong household finances, loose-ish monetary policy, and a surge in immigration kept growth going. Today? Conditions aren’t as favorable, and the labor tailwind has faded.

Draho said the hard-to-measure X-factor reason the U.S. could avoid recession is economic dynamism, calling it the ’Uberfication’ effect. “When supply and demand are misaligned because of supplyside shocks, the prices for goods and services adjust quickly to bring the entire economy back into equilibrium,” he comments. That same agility might soften the blow of new tariffs, though risks remain.

The strategist highlights that the S&P 500’s 14% rebound isn’t just crowd wisdom—it’s relief that final tariffs won’t be as bad as the ‘Liberation Day’ announcements. Meanwhile, he said there is always a bull case scenario for US financial markets, and right now it is "the economy being relatively immune to the negative consequences of higher tariffs."

Overall, Draho said that one of the biggest investor mistakes is failing to imagine alternative outcomes. While tariffs will likely bring pain, assuming no upside is short-sighted he said. The strategist said that markets don’t appear to be priced for coming data weakness related to tariffs, which could create phased entry opportunities for U.S. stocks. “It can be hard to allocate when the data is getting worse, but keep in mind that for two years US equities climbed the wall of worry as investors continually expected data to worsen, which it never did,” he commented. “To reference Buffett again, it’s better to be fearful when others are greedy, and greedy when others are fearful.”

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