The economic outlook in America is getting gloomy.

New data released Tuesday showed US consumer confidence down for the fourth straight month and Americans’ faith in their financial futures at a 12-year low. And Moody’s, the last of the major credit rating agencies to maintain a triple-A rating for US sovereign debt, said it sees a weakening fiscal situation in the years to come.

Consumers and Credit (of the Sovereign Variety)

We start with Moody’s, which said in a report Tuesday that widening budget deficits and swelling debt could spell a multi-year decline for the nation’s fiscal health.

Of particular note, the ratings agency forecasts that the ratio of debt to gross domestic product (GDP), a very simple indicator of a country’s ability to pay back its debts, will climb to 130% by 2035 from roughly 100% this year. In the process, the agency forecasts interest payments will grow to 30% of federal spending in 2035, more than triple the 9% in 2021. The agency also noted that trade wars may introduce even further complications: namely, the key role of the US dollar and Treasuries in global financial markets, which helps stabilize debt affordability, could be diminished. The White House is also planning tax cut extensions to the tune of $4.5 trillion, but has pledged to dramatically cut spending.

Then there are consumers, less moved by the seismic forces of sovereign debt markets and more by grocery prices. They, too, don’t have the highest hopes, at the moment:

• The Conference Board said Tuesday that its overall consumer confidence index dropped to 92.9 in March, the lowest reading since February 2021. The Board said the stock market’s performance was likely a contributor to that sentiment: The S&P 500 is down 1.6% this year and the Roundhill Magnificent Seven ETF, representing the major tech stocks that fueled the market’s rally in the past two years, is down 10.4%.
• More dire was the Conference Board’s measure of Americans’ short-term outlook on income, business and labor market conditions. The so-called Present Situation Index fell 9.6 points from February to 65.2, the lowest since 2013 and well below the threshold of 80 that the board says can potentially augur a recession.

Retailers have been sending signals as well. Walmart, which had a strong 2024, nevertheless slashed its profit forecast this year and Target, Macy’s and Best Buy are among other retailers whose executives have offered warnings about future earnings given potential tariff-related costs.

Housewarming: In a bit of sunny news, warmer pre-spring weather and, probably more importantly, declining mortgage rates helped single-family home purchases in the US rebound last month. New home sales rose 1.8% in February, the Commerce Department’s Census Bureau said on Tuesday, as it also revised the January sales figure upward to 664,000 units from 657,000 units.

Wall Street’s panic cycle is retail investors’ opportunity cycle.

As institutional investors execute a historic rotation out of US equities, average Joes are jumping on the chance to, as the parlance goes, buy the dip — and so far have poured $67 billion into battered US stocks, according to VandaTrack data seen by the Financial Times. In other words: the Redditors are at it again.

Dip or Flop

With stagflation on the mind, institutional investors are dumping US stocks at a record pace. In fact, a recent Bank of America survey of global fund investors found that the period between March 7 and 13 marked the single-largest ever move away from US equities — as investors rotated into the eurozone and emerging markets equities. Nearly 70% of investors said the time of US equities outperforming the rest of the world has “peaked,” while 71% said they foresee stagflation in the next 12 months.

Those are big scary words, but the retail crowd doesn’t seem to care. Net inflows of $67 billion into US equities and ETFs in the first quarter of 2025 are down just slightly from the $71 billion seen in the final quarter of 2024, according to the VandaTrack data seen by the FT. As the market teetered toward meltdown mode, retail investors poured $12 billion into US equities in the week ending March 19 alone, according to JPMorgan data seen by Bloomberg, a significantly higher pace than the average week over the previous year.

Returns for the cohort this year probably haven’t been all that great, unsurprisingly — but buyers still have at least some reason to believe the strategy will pay off:

• On Thursday last week, JPMorgan global equity derivatives strategist Emma Wu told Bloomberg she estimates retail investors have seen a 7% loss so far this year, compared with the S&P 500’s 3.7% decline on the year through market close Thursday. Since then, however, the S&P 500 has climbed nearly 2.4% as US equities rebounded on hopes that the government softens promised tariffs planned for April 2.
• It’s the kind of rebound retail investors were hoping for — and are accustomed to, in times of such market downturns. In fact, the last time retail investors poured this heavily into US equities was 2022, the only year in the past six that the S&P 500 had finished in the red, dropping roughly 18%.

Then and Now: “Dip-buying has been an essentially foolproof strategy for four of the past five years,” Steve Sosnick, chief market strategist of retail investing platform Interactive Brokers, told the FT. But not all dips are made equally — and Goldman Sachs analysts have recently pointed out what makes this year’s rotation unique. “While equity market corrections are historically not that uncommon, a coincident dollar sell-off is — especially when equities rapidly reprice,” the investment bank wrote in a note to clients this week. So far this year, the US Dollar Index is down nearly 4%; the index climbed roughly 6% through 2022.

California’s insurer of last resort is heading into peak fire season with a dwindling cash balance. The FAIR Plan, which insures California’s highest-risk homes, will only have about $305 million left by June after receiving a $1 billion bailout from major insurers to cover claims from January’s devastating LA fires.

The $1 billion deal was the plan’s largest bailout in nearly 60 years and the first time the plan needed help paying claims since 1994.

If another major fire hits California this summer, when fire risks are expected to increase, the FAIR Plan could need another bailout. And major insurers may not be so willing to pay the tab twice in one year.

A Dangerous Flywheel

California insurance was already in dire straits when January’s fires hit LA. Fires in 2017 and 2018 cost insurers more than two decades’ worth of profits after tens of thousands of structures were destroyed.

After that fire season, insurers including Allstate and Farmers limited their California policies and pulled out of high-risk areas.

• Last year, State Farm dropped thousands of policies in areas affected by the recent LA wildfires, including 1,600 homes in the Pacific Palisades.
• As major insurers left, more homeowners switched to the FAIR plan: from 2020 to 2024, FAIR Plan policies doubled to cover nearly 500,000 homes.

With the FAIR Plan on the hook for so many policies, major insurers may need to bail it out again when California faces its next crisis. But insurers, who are required to contribute to the FAIR Plan while they operate in the state, may decide to ditch the state instead.

To keep that from happening, insurers are pushing for higher rates to cover rising costs: State Farm, California’s largest insurer, received provisional approval last month to roll out a 22% emergency rate increase.

Uninsurable America: Like other disaster-prone states, California is facing an insurance crisis that may continue to spiral. Insurers drop policies as disasters become more expensive, pushing additional homeowners to its FAIR Plan. Then, when the FAIR Plan can’t afford the influx and asks insurers for bailouts, insurers drop more policies. With climate-related disasters widely expected to increase, some experts say regulators need to think further ahead and restrict building in high-risk areas.