Share your opinion about this

2
Comment
Favorite

Daddygoh
2025-10-08

Share your opinion about this news…

Three Scenarios That Could Spook Stocks in October, According to a Wall Street Veteran

Signs of an AI bubble and an increasingly stressed lower-income consumer could dampen investors’ enthusiasm for stocks, says Tom Essaye, founder of the Sevens Report.

Three Scenarios That Could Spook Stocks in October, According to a Wall Street Veteran

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Report

Comment

Top
Latest

No comments yet

Most Discussed

{"i18n":{"language":"en_US"},"data":{"magic":2,"id":486938847908248,"tweetId":"486938847908248","gmtCreate":1759911871857,"gmtModify":1759911940082,"author":{"id":4088751882328130,"idStr":"4088751882328130","authorId":4088751882328130,"authorIdStr":"4088751882328130","name":"Daddygoh","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":11,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":0,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"html":"<html><head></head><body><p>Share your opinion about this news…</p></body></html>","htmlText":"<html><head></head><body><p>Share your opinion about this news…</p></body></html>","text":"Share your opinion about this news…","highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://ttm.financial/post/486938847908248","repostId":2573401951,"repostType":2,"repost":{"id":"2573401951","kind":"highlight","weMediaInfo":{"introduction":"Dow Jones publishes the world’s most trusted business news and financial information in a variety of media.","home_visible":0,"media_name":"Dow Jones","id":"106","head_image":"https://static.tigerbbs.com/150f88aa4d182df19190059f4a365e99"},"pubTimestamp":1759908600,"share":"https://ttm.financial/m/news/2573401951?lang=en_US&edition=fundamental","pubTime":"2025-10-08 15:30","market":"us","language":"en","title":"Three Scenarios That Could Spook Stocks in October, According to a Wall Street Veteran","url":"https://stock-news.laohu8.com/highlight/detail?id=2573401951","media":"Dow Jones","summary":"Signs of an AI bubble and an increasingly stressed lower-income consumer could dampen investors’ enthusiasm for stocks, says Tom Essaye, founder of the Sevens Report.","content":"<html><head></head><body><p>As Halloween decorations start to appear in storefronts and on front porches across the U.S., one Wall Street veteran has decided to take a closer look at three scenarios that could spook markets as the fourth quarter gets underway.</p><p style=\"text-align: start;\">“Over the weekend, my family and I decorated our house and yard for Halloween. While doing so, it dawned on me that much of the financial media and analyst community isn’t accurately portraying this market reality: The outlook for stocks and risk assets remains positive, but if things start to turn bad, the situation becomes downright scary from a return standpoint,” said Tom Essaye, founder and president of Sevens Report Research, in commentary shared with MarketWatch.</p><p>October has a reputation for volatility, largely for two reasons: On Oct. 19, 1987, the S&amp;P 500 fell by 20.5% in a selloff that has been remembered as ”Black Monday.” To this day, that is the biggest percentage-point drop ever recorded for the index in a single session.</p><p>In October 2008, the index fell by nearly 17% as the global financial crisis spread. That ended up being the most painful month of a selloff that ultimately saw the index’s value cut in half.</p><p style=\"text-align: start;\">Already, the market is showing signs of mounting apprehension among traders even as the S&amp;P 500 headed for another record finish on Monday. Last week, the Cboe Volatility Index rose for five straight sessions alongside the S&amp;P 500.</p><p style=\"text-align: start;\">Ryan Detrick, chief market strategist at Carson Group, pointed out that this is the first time both indexes have risen together for five straight days since 1996. The VIX is based in part on demand for option contracts that could protect against a selloff in the S&amp;P 500.</p><h3 id=\"id_562266101\" style=\"text-align: start;\">AI is a bubble</h3><p style=\"text-align: start;\">The first scary scenario sketched out by Essaye is the possibility that AI investment might be in a bubble.</p><p style=\"text-align: start;\">The topic has been widely discussed on Wall Street recently, Essaye pointed out. But so far, investors have mostly ignored these risks. Just look at Monday’s huge rally in shares of Advanced Micro Devices, which soared on news of a multiyear chip deal involving OpenAI.</p><p>Yet potential red flags have continued to multiply. The growing number of circular financing arrangements involving Nvidia Corp. and its customers is one example, Essaye said.</p><p style=\"text-align: start;\">He isn’t the only one thinking about the risks of relying too heavily on these arrangements.</p><p style=\"text-align: start;\">A team of analysts at Goldman Sachs Group on Monday acknowledged the circular nature of deals involving Nvidia and OpenAI in a report shared with MarketWatch.</p><p style=\"text-align: start;\">However, the Goldman team concluded that these deals represent less than 15% of Nvidia’s expected revenue in 2027. That leaves plenty of room for Nvidia’s core customers to continue to boost demand for its chips.</p><p style=\"text-align: start;\">Another risk: the climbing valuations for private AI companies. Last week, OpenAI’s valuation hit $500 billion, making it the world’s most valuable private company, after company insiders were allowed to sell some of their shares to Japanese conglomerate Softbank. The fact that, as of now, these companies still lack a clear path to profitability should be enough to give some investors pause, Essaye said.</p><p style=\"text-align: start;\">If the AI bubble does ultimately burst, it could cause the S&amp;P 500 to fall by between 10% and 20%, if not more. Most of this would be driven by negative earnings revisions for AI giants like Nvidia, as well as companies like Meta Platforms Inc. and Microsoft Corp., which have become Nvidia’s biggest customers. But the suspension of Big Tech’s spending on AI data centers and other associated capital expenditures could impact sectors beyond technology, including industrials and utilities names.</p><h3 id=\"id_2702612150\" style=\"text-align: start;\">Credit stress hits the economy</h3><p style=\"text-align: start;\">Consumers with less income and savings have been struggling for some time now. So far, financial markets have managed to mostly ignore their plight. But that could soon change.</p><p style=\"text-align: start;\">As third-quarter earnings reports start rolling in, investors could hear more alarming warnings from companies that are closer to the American consumer. Already, CarMax has reported a jump in its loan-delinquency rate, joining a chorus of companies warning that lower-income consumers are looking increasingly stretched.</p><p style=\"text-align: start;\">Consumers are struggling to keep up with rising prices now that the rate of income growth has slowed, Essaye said. This is even helping to stoke fears about a “minor-ish” credit event for financial companies like Synchrony Financial, Capital One Financial Corp. and others, Essaye said.</p><p style=\"text-align: start;\">“To be clear, I’m not talking about a 2008-style event. I’m talking about stress on the majority of consumer spending that turns out to be a surprise negative,” Essaye said.</p><h3 id=\"id_2971839379\" style=\"text-align: start;\">Sagging labor market weighs on economy</h3><p style=\"text-align: start;\">There is no question that the labor market in the U.S. has started to weaken. The only thing open for debate right now is how bad this will get, Essaye said.</p><p style=\"text-align: start;\">Right now, investors expect modest labor-market weakness, but not enough to dampen the outlook for economic growth, which is increasingly being driven by AI-related investment.</p><p style=\"text-align: start;\">Investors are thinking that the unemployment rate will rise as high as 4.5% or 4.6%, then stay there. However, Essaye said this has rarely happened in the past. Once unemployment starts to pick up, it generally continues to climb. Right now, markets — particularly U.S. stocks — are making almost no allowances for the possibility of a recession.</p><p style=\"text-align: start;\">“Recessions can and will happen, and while no one expects one now, that doesn’t mean it won’t happen,” Essaye said.</p><p style=\"text-align: start;\">The real “horror-movie scenario” for investors at this point, according to Essaye, is that investors finally wake up to all three of these risks at the same time. A deflating AI bubble and buckling consumer against the backdrop of a broadly slowing economy would result in a 30% decline for the S&amp;P 500 that could take years to work off. Think the dot-com bubble, which took more than two years to completely deflate.</p><p style=\"text-align: start;\">Essaye was a trader at Merrill Lynch before launching the Sevens Report.</p><p style=\"text-align: start;\">U.S. stocks closed lower on Tuesday, with the Dow Jones Industrial Average fell 0.2%, the S&amp;P 500 dropped 0.4%, and Nasdaq Composite declined 0.7%.</p></body></html>","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Three Scenarios That Could Spook Stocks in October, According to a Wall Street Veteran</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nThree Scenarios That Could Spook Stocks in October, According to a Wall Street Veteran\n</h2>\n\n<h4 class=\"meta\">\n\n\n<div class=\"head\" \">\n\n\n<div class=\"h-thumb\" style=\"background-image:url(https://static.tigerbbs.com/150f88aa4d182df19190059f4a365e99);background-size:cover;\"></div>\n\n<div class=\"h-content\">\n<p class=\"h-name\">Dow Jones </p>\n<p class=\"h-time\">2025-10-08 15:30</p>\n</div>\n\n</div>\n\n\n</h4>\n\n</header>\n<article>\n<html><head></head><body><p>As Halloween decorations start to appear in storefronts and on front porches across the U.S., one Wall Street veteran has decided to take a closer look at three scenarios that could spook markets as the fourth quarter gets underway.</p><p style=\"text-align: start;\">“Over the weekend, my family and I decorated our house and yard for Halloween. While doing so, it dawned on me that much of the financial media and analyst community isn’t accurately portraying this market reality: The outlook for stocks and risk assets remains positive, but if things start to turn bad, the situation becomes downright scary from a return standpoint,” said Tom Essaye, founder and president of Sevens Report Research, in commentary shared with MarketWatch.</p><p>October has a reputation for volatility, largely for two reasons: On Oct. 19, 1987, the S&amp;P 500 fell by 20.5% in a selloff that has been remembered as ”Black Monday.” To this day, that is the biggest percentage-point drop ever recorded for the index in a single session.</p><p>In October 2008, the index fell by nearly 17% as the global financial crisis spread. That ended up being the most painful month of a selloff that ultimately saw the index’s value cut in half.</p><p style=\"text-align: start;\">Already, the market is showing signs of mounting apprehension among traders even as the S&amp;P 500 headed for another record finish on Monday. Last week, the Cboe Volatility Index rose for five straight sessions alongside the S&amp;P 500.</p><p style=\"text-align: start;\">Ryan Detrick, chief market strategist at Carson Group, pointed out that this is the first time both indexes have risen together for five straight days since 1996. The VIX is based in part on demand for option contracts that could protect against a selloff in the S&amp;P 500.</p><h3 id=\"id_562266101\" style=\"text-align: start;\">AI is a bubble</h3><p style=\"text-align: start;\">The first scary scenario sketched out by Essaye is the possibility that AI investment might be in a bubble.</p><p style=\"text-align: start;\">The topic has been widely discussed on Wall Street recently, Essaye pointed out. But so far, investors have mostly ignored these risks. Just look at Monday’s huge rally in shares of Advanced Micro Devices, which soared on news of a multiyear chip deal involving OpenAI.</p><p>Yet potential red flags have continued to multiply. The growing number of circular financing arrangements involving Nvidia Corp. and its customers is one example, Essaye said.</p><p style=\"text-align: start;\">He isn’t the only one thinking about the risks of relying too heavily on these arrangements.</p><p style=\"text-align: start;\">A team of analysts at Goldman Sachs Group on Monday acknowledged the circular nature of deals involving Nvidia and OpenAI in a report shared with MarketWatch.</p><p style=\"text-align: start;\">However, the Goldman team concluded that these deals represent less than 15% of Nvidia’s expected revenue in 2027. That leaves plenty of room for Nvidia’s core customers to continue to boost demand for its chips.</p><p style=\"text-align: start;\">Another risk: the climbing valuations for private AI companies. Last week, OpenAI’s valuation hit $500 billion, making it the world’s most valuable private company, after company insiders were allowed to sell some of their shares to Japanese conglomerate Softbank. The fact that, as of now, these companies still lack a clear path to profitability should be enough to give some investors pause, Essaye said.</p><p style=\"text-align: start;\">If the AI bubble does ultimately burst, it could cause the S&amp;P 500 to fall by between 10% and 20%, if not more. Most of this would be driven by negative earnings revisions for AI giants like Nvidia, as well as companies like Meta Platforms Inc. and Microsoft Corp., which have become Nvidia’s biggest customers. But the suspension of Big Tech’s spending on AI data centers and other associated capital expenditures could impact sectors beyond technology, including industrials and utilities names.</p><h3 id=\"id_2702612150\" style=\"text-align: start;\">Credit stress hits the economy</h3><p style=\"text-align: start;\">Consumers with less income and savings have been struggling for some time now. So far, financial markets have managed to mostly ignore their plight. But that could soon change.</p><p style=\"text-align: start;\">As third-quarter earnings reports start rolling in, investors could hear more alarming warnings from companies that are closer to the American consumer. Already, CarMax has reported a jump in its loan-delinquency rate, joining a chorus of companies warning that lower-income consumers are looking increasingly stretched.</p><p style=\"text-align: start;\">Consumers are struggling to keep up with rising prices now that the rate of income growth has slowed, Essaye said. This is even helping to stoke fears about a “minor-ish” credit event for financial companies like Synchrony Financial, Capital One Financial Corp. and others, Essaye said.</p><p style=\"text-align: start;\">“To be clear, I’m not talking about a 2008-style event. I’m talking about stress on the majority of consumer spending that turns out to be a surprise negative,” Essaye said.</p><h3 id=\"id_2971839379\" style=\"text-align: start;\">Sagging labor market weighs on economy</h3><p style=\"text-align: start;\">There is no question that the labor market in the U.S. has started to weaken. The only thing open for debate right now is how bad this will get, Essaye said.</p><p style=\"text-align: start;\">Right now, investors expect modest labor-market weakness, but not enough to dampen the outlook for economic growth, which is increasingly being driven by AI-related investment.</p><p style=\"text-align: start;\">Investors are thinking that the unemployment rate will rise as high as 4.5% or 4.6%, then stay there. However, Essaye said this has rarely happened in the past. Once unemployment starts to pick up, it generally continues to climb. Right now, markets — particularly U.S. stocks — are making almost no allowances for the possibility of a recession.</p><p style=\"text-align: start;\">“Recessions can and will happen, and while no one expects one now, that doesn’t mean it won’t happen,” Essaye said.</p><p style=\"text-align: start;\">The real “horror-movie scenario” for investors at this point, according to Essaye, is that investors finally wake up to all three of these risks at the same time. A deflating AI bubble and buckling consumer against the backdrop of a broadly slowing economy would result in a 30% decline for the S&amp;P 500 that could take years to work off. Think the dot-com bubble, which took more than two years to completely deflate.</p><p style=\"text-align: start;\">Essaye was a trader at Merrill Lynch before launching the Sevens Report.</p><p style=\"text-align: start;\">U.S. stocks closed lower on Tuesday, with the Dow Jones Industrial Average fell 0.2%, the S&amp;P 500 dropped 0.4%, and Nasdaq Composite declined 0.7%.</p></body></html>\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"LU0868494708.USD":"UBS (LUX) EQUITY SICAV - US TOTAL YIELD SUSTAINABLE \"P\" (USD) INC","IE00B3M56506.USD":"NEUBERGER BERMAN EMERGING MARKETS EQUITY \"A\" (USD) ACC","LU0476273544.USD":"CT (LUX) I GLOBAL TECHNOLOGY \"BU\" (USD) ACC","LU1035773651.USD":"AB SICAV I - GLOBAL VALUE PORTFOLIO \"AD\" (USD) INC","LU1366192091.USD":"ALLIANZ US EQUITY PLUS \"AM\" (USD) INC",".DJI":"道琼斯","LU1564329115.USD":"Blackrock Dynamic High Income A6 USD",".SPX":"S&P 500 Index",".IXIC":"NASDAQ Composite","LU2361044949.HKD":"WELLINGTON US QUALITY GROWTH \"A\" (HKD) ACC","LU2430703251.USD":"WELLINGTON MULTI-ASSET HIGH INCOME \"AM4\" (USD) INC","SG9999014914.USD":"UNITED GLOBAL QUALITY GROWTH (USDHDG) INC","LU1868836914.USD":"CT (LUX) I AMERICAN \"3\" (USD) ACC","LU2602419157.SGD":"HSBC ISLAMIC GLOBAL EQUITY INDEX \"AC\" (SGD) ACC","LU1582987597.SGD":"M&G (LUX) INCOME ALLOCATION \"A-H\" (SGDHDG) INC","IE0004086264.USD":"BNY MELLON GLOBAL OPPORTUNITIES \"A\" (USD) ACC","LU0466842654.USD":"HSBC ISLAMIC GLOBAL EQUITY INDEX \"A\" (USD) ACC"},"source_url":"https://dowjonesnews.com/newdjn/logon.aspx?AL=N","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"2573401951","content_text":"As Halloween decorations start to appear in storefronts and on front porches across the U.S., one Wall Street veteran has decided to take a closer look at three scenarios that could spook markets as the fourth quarter gets underway.“Over the weekend, my family and I decorated our house and yard for Halloween. While doing so, it dawned on me that much of the financial media and analyst community isn’t accurately portraying this market reality: The outlook for stocks and risk assets remains positive, but if things start to turn bad, the situation becomes downright scary from a return standpoint,” said Tom Essaye, founder and president of Sevens Report Research, in commentary shared with MarketWatch.October has a reputation for volatility, largely for two reasons: On Oct. 19, 1987, the S&P 500 fell by 20.5% in a selloff that has been remembered as ”Black Monday.” To this day, that is the biggest percentage-point drop ever recorded for the index in a single session.In October 2008, the index fell by nearly 17% as the global financial crisis spread. That ended up being the most painful month of a selloff that ultimately saw the index’s value cut in half.Already, the market is showing signs of mounting apprehension among traders even as the S&P 500 headed for another record finish on Monday. Last week, the Cboe Volatility Index rose for five straight sessions alongside the S&P 500.Ryan Detrick, chief market strategist at Carson Group, pointed out that this is the first time both indexes have risen together for five straight days since 1996. The VIX is based in part on demand for option contracts that could protect against a selloff in the S&P 500.AI is a bubbleThe first scary scenario sketched out by Essaye is the possibility that AI investment might be in a bubble.The topic has been widely discussed on Wall Street recently, Essaye pointed out. But so far, investors have mostly ignored these risks. Just look at Monday’s huge rally in shares of Advanced Micro Devices, which soared on news of a multiyear chip deal involving OpenAI.Yet potential red flags have continued to multiply. The growing number of circular financing arrangements involving Nvidia Corp. and its customers is one example, Essaye said.He isn’t the only one thinking about the risks of relying too heavily on these arrangements.A team of analysts at Goldman Sachs Group on Monday acknowledged the circular nature of deals involving Nvidia and OpenAI in a report shared with MarketWatch.However, the Goldman team concluded that these deals represent less than 15% of Nvidia’s expected revenue in 2027. That leaves plenty of room for Nvidia’s core customers to continue to boost demand for its chips.Another risk: the climbing valuations for private AI companies. Last week, OpenAI’s valuation hit $500 billion, making it the world’s most valuable private company, after company insiders were allowed to sell some of their shares to Japanese conglomerate Softbank. The fact that, as of now, these companies still lack a clear path to profitability should be enough to give some investors pause, Essaye said.If the AI bubble does ultimately burst, it could cause the S&P 500 to fall by between 10% and 20%, if not more. Most of this would be driven by negative earnings revisions for AI giants like Nvidia, as well as companies like Meta Platforms Inc. and Microsoft Corp., which have become Nvidia’s biggest customers. But the suspension of Big Tech’s spending on AI data centers and other associated capital expenditures could impact sectors beyond technology, including industrials and utilities names.Credit stress hits the economyConsumers with less income and savings have been struggling for some time now. So far, financial markets have managed to mostly ignore their plight. But that could soon change.As third-quarter earnings reports start rolling in, investors could hear more alarming warnings from companies that are closer to the American consumer. Already, CarMax has reported a jump in its loan-delinquency rate, joining a chorus of companies warning that lower-income consumers are looking increasingly stretched.Consumers are struggling to keep up with rising prices now that the rate of income growth has slowed, Essaye said. This is even helping to stoke fears about a “minor-ish” credit event for financial companies like Synchrony Financial, Capital One Financial Corp. and others, Essaye said.“To be clear, I’m not talking about a 2008-style event. I’m talking about stress on the majority of consumer spending that turns out to be a surprise negative,” Essaye said.Sagging labor market weighs on economyThere is no question that the labor market in the U.S. has started to weaken. The only thing open for debate right now is how bad this will get, Essaye said.Right now, investors expect modest labor-market weakness, but not enough to dampen the outlook for economic growth, which is increasingly being driven by AI-related investment.Investors are thinking that the unemployment rate will rise as high as 4.5% or 4.6%, then stay there. However, Essaye said this has rarely happened in the past. Once unemployment starts to pick up, it generally continues to climb. Right now, markets — particularly U.S. stocks — are making almost no allowances for the possibility of a recession.“Recessions can and will happen, and while no one expects one now, that doesn’t mean it won’t happen,” Essaye said.The real “horror-movie scenario” for investors at this point, according to Essaye, is that investors finally wake up to all three of these risks at the same time. A deflating AI bubble and buckling consumer against the backdrop of a broadly slowing economy would result in a 30% decline for the S&P 500 that could take years to work off. Think the dot-com bubble, which took more than two years to completely deflate.Essaye was a trader at Merrill Lynch before launching the Sevens Report.U.S. stocks closed lower on Tuesday, with the Dow Jones Industrial Average fell 0.2%, the S&P 500 dropped 0.4%, and Nasdaq Composite declined 0.7%.","news_type":1,"symbols_score_info":{".SPX":1.1,".IXIC":1.1,".DJI":1.1}},"isVote":1,"tweetType":1,"viewCount":505,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":30,"optionInvolvedFlag":false,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}