Billionaire Steven Cohen sends hard-nosed message on US economy, stocks

The legendary hedge fund manager offered up a stock market and recession forecast.

May 15, 2025 - 12:42

Billionaire Steven Cohen sends hard-nosed message on US economy, stocks

The stock market's rally since President Trump paused reciprocal tariffs on April 9 has been impressive. The S&P 500 and Nasdaq have surged 18% and 25%, respectively, in hopes that cooler heads and trade negotiations would reduce the risk that tariffs would send the U.S. economy into a tailspin.

The surge in stocks has been so impressive that the S&P 500, the benchmark index most used to gauge stock market strength, has recovered all its tariff-driven losses, shifting from a nearly 20% bear market loss to a year-to-date return of 0.19%.

While optimism has clearly rebounded, not everyone, including billionaire hedge fund manager Steven Cohen, is convinced that stocks and the U.S. economy are out of the woods.

Cohen is a legendary fund manager whose success at SAC Capital made him one of the most prominent money managers ever. He currently runs Point72, another hedge fund with $37 billion in assets under management, and owns the New York Mets.

Cohen commented on the recent stock market rally this week, offering a frank assessment of recession risks and an updated stock outlook that may raise some eyebrows.

Hedge fund manager Steven Cohen thinks there's a possibility stocks return to their April lows.
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The Fed is on hold, and potentially, behind the curve

The Federal Reserve sets the Federal Funds Rate at levels to encourage low unemployment and inflation. Unfortunately, that’s not as easy as it sounds.

Employment and inflation often run contrary to one another. When the Fed raises rates, it slows the economy, crimping inflation, but causing unemployment. When it cuts rates, it accelerates the economy, boosting jobs, but increasing inflation.

We’ve seen this dynamic play out over the past few years. In 2022, after incorrectly labeling inflation as transitory, Fed Chair Jerome Powell embarked on the most hawkish pace of rate hikes since the early 1980s to lower inflation.

It worked, given inflation has slipped below 3%, but it also has caused the unemployment rate to rise to 4.2% from 3.4% in 2024.

Over the past year, we’ve seen a steady increase in layoffs, including over 602,000 this year through April, according to Challenger, Gray, & Christmas, the most since Covid.

The economy was already showing signs of wear heading into 2025, and market watchers have become downright pessimistic since Trump unveiled a series of surprising tariffs.

In February, Trump instituted 25% tariffs on Canada and Mexico, and 10% tariffs on China, which increased to 20% in March. In April, he unveiled harsher than hoped reciprocal tariffs worldwide, including a 10% baseline import tax.

While Trump paused most reciprocal tariffs on April 9, a trade war with China caused Chinese tariffs to soar to 145%.

The Trump administration recently rolled those Chinese tariffs back to 30% in a sign of good faith while negotiating a broader trade agreement, but the taxes still represent a massive burden on the economy that didn’t exist one year ago.

Steven Cohen offers blunt words on the economy, stocks

Cohen has been tracking the market professionally since 1978, and his decades of experience mean that he’s navigated more than his share of good and bad economies and seen plenty of bull and bear markets.

While the stock market's recent rally is impressive and the progress on trade deals lately is encouraging, Cohen isn’t entirely convinced that we’re out of the woods yet, given his candid words at the Sohn Investment Conference this week.

Cohen said at the conference that the S&P 500 may retest its April lows. He also said that there’s a 45% chance the U.S. economy will still wind up in a recession.

“We’re not in a recession yet. I think we are going to have significant slowing growth. We think it will probably be a 45% chance of recession. So, that’s not insignificant,” said Cohen.

Cohen doesn’t expect the Fed to move quickly to support the economy or stocks.

“We don't think the Fed's going to act right away, because they're still going to be worried about inflation from tariffs,” said Cohen.

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Cohen believes GDP will grow by 1.5% or lower next year, though. That’s not terrible, but not as strong as many would like, given GDP clocked in at 3% last summer.

Cohen said that Trump's recent actions with China eliminate the “dire scenario,” but he expects a rangebound market.

If the stock market retests its lows, it would be tough news for investors, who have been on a roller coaster this year. The S&P 500’s volatility has soared, leaving many investors wringing their hands over what could happen next.

The Treasury bond market may also be signaling problems. The 10-year Treasury note yield has broken out above 4.5% on Wednesday, its highest since mid-February. Rising bond yields can typically present headwinds for stocks, as higher yields make Treasuries more competitive against stocks for returns.