Wall Street Bullish on Stocks, But Red Flags Persist for U.S. Economy

The S&P 500 had a great 2025, advancing 17.9%, and Wall Street remains bullish on stocks in 2026, with forecasters predicting that the index will close out the year at 8,000. This would represent a 14.6% increase from current levels. Despite the enthusiasm, the U.S. economy is showing signs of weakness, exhibiting red flags to which investors should pay close attention.

U.S. Economy: Red Flags in Jobs & Prices

When U.S. President Trump entered the Oval Office for a second time in January 2025, he said, “The golden age of America begins right now, from this day forward our country will flourish and be respected again all over the world.”

It hasn’t been that easy. The U.S. economy faced serious headwinds in 2025. Two areas that the president said he would improve were U.S. jobs and prices. But that hasn’t happened yet.

U.S. jobs growth stalled in 2025, with an average of 55,000 jobs added each month. This is in sharp contrast to the average 168,000 jobs created each month in 2024. In 2025, the U.S. economy added 584,000 jobs. So, 2025 was the weakest year for jobs growth, outside of a recession, since 2003. For comparison’s sake, note that the U.S. economy added two million jobs in 2024.

During the last year of Joe Biden’s presidency, the headline unemployment rate (the percentage of people who are jobless but actively looking for work) was in the range of 3.9% to 4.2%. In November 2025, during President Trump’s tenure, it climbed to 4.5%; the highest level in more than four years. In December, the rate inched down to 4.4%, its first reversal since July.

Prices also remain elevated. Back in April 2025, Trump unveiled his global tariff policy. This spooked investors and sent stocks reeling. While they quickly recovered, the big question remains: how will tariffs impact the U.S. economy?

President Trump insists that other countries will pay the tariffs, but it’s U.S. businesses that must foot the bill. And they tend to pass those tariffs along to consumers, resulting in higher costs on goods.

Since announcing those tariffs, the country’s inflation has been on the rise, hitting three percent in September. U.S. inflation fell to 2.7% in November, but that reading is not what it seems; a government shutdown that lasted from the beginning of October through November 12 tainted the data. We’ll get a better idea of where U.S. inflation is when December and January’s data are released.

Are U.S. Consumers Optimistic?

These two failed policy issues have resulted in weakening consumer confidence. In December 2025, the widely followed University of Michigan’s consumer sentiment index registered 52.9. It has only been lower once in the last five years, hitting 51.0 in November 2025. For context, in December 2024, the index hit 75.1.

These readings aren’t a total surprise. While consumer spending remains robust, American household debt levels, which includes mortgages, car loans, credit cards, and student debt, hit a record high $18.6 trillion from July through September 2025. Credit card balances hit a record $1.23 trillion.

Keep in mind that U.S. consumer spending is responsible for roughly 70% of economic activity. Should U.S. jobs growth and inflation not improve, consumers could pull back on spending which would negatively impact Wall Street and earnings.

Learn-to-Trade.com, Canada’s Leader in Stock Market Trading Courses

Learn-to-Trade.com is Canada’s oldest and leading provider of stock market trading courses. Over the years, the experts at Learn-to-Trade.com have helped tens of thousands of Canadians, of every skill level, learn how to trade more confident and profit more consistently.

We also provide a unique, Lifetime Membership that allows members to re-attend any part of the program as often as they’d like.

To learn more about Learn-to-Trade.com’s stock market trading course, contact us at 416-510-5560 or by e-mail at info@learn-to-trade.com.