Disasters Have a Way of Not Happening

Global trade didn’t contract as many feared. Instead, trade routes adjusted and supply chains reorganized. China lost market share, but Mexico, Canada, Vietnam, and India stepped in. The disruption was more surgical than systemic, at least until COVID.

Trump 2.0 tariffs feel different. If implemented as proposed, Trump 2.0 tariffs would represent some of the most aggressive trade restrictions since the Smoot-Hawley Tariff Act in the 1930s. Even if tariffs are negotiated down, which seems likely, the uncertainty alone is proving disruptive. Uncertainty is a tariff in its own right—and for now, it’s being priced as a costly one.

The early signals are unmistakable. Business confidence is deteriorating amid growing uncertainty. The latest NFIB Small Business Optimism Index has fallen to levels seen only during the COVID recession and the Global Financial Crisis. Households are feeling the same unease, taking the University of Michigan Consumer Sentiment down to multi-decade lows.

Forward indicators, including new orders, shipments, and capex plans, are softening. This earnings season, an above-average number of companies pulled their forward guidance. Conversations in boardrooms are shifting from growth to defense.

Add it all up, and the risk of a negative feedback loop is rising.

Once a loop like this one sets in, it becomes self-reinforcing. Breaking it requires either a decisive shift in monetary policy or a meaningful fiscal response. Right now, neither looks imminent. Monitoring signals like the Challenger Job Cut Announcements and initial jobless claims will be important to determine if this feedback loop is beginning. While federal job cuts have appeared in the Challenger Job Cut Announcements, private industry layoffs announcements remain low, as do initial jobless claims.

For now, the Federal Reserve appears more focused on labor markets than trade policy. Fed officials recognize the risk of a negative spiral but have yet to act preemptively. So why wait? The logic is tactical: acting now would risk depleting their ammunition too early. But hesitation carries its own cost—the longer they wait, the greater the odds that they’ll have to do more, not less, and the less likely a soft landing becomes. Watching closely, of course, are the markets, which currently reflect the possibility of four rate cuts in 2025.

The U.S. enters this period of uncertainty from a position of relative strength. Sentiment has clearly deteriorated, but fundamentals haven’t cracked, especially when it comes to household and corporate balance sheets, which are in solid shape. In fact, many of the traditional warning signs of recession aren’t flashing red at all.

Start with the corporate sector. While the impacts from current market volatility and economic uncertainty remain to be seen, portfolio company data has thus far shown healthy revenues, strong margins, and CEOs who, while cautious, remain confident in their ability to manage through the noise. ^{[ 8 ] [ 9 ]} At the same time, we’re not seeing signs of real stress beneath the surface. One of the earliest indicators of real corporate stress is when gross interest expense rises as a percentage of revenue, forcing companies to slash investment or cut labor costs. But that’s not what we’re seeing. Gross interest expense as a share of revenue remains near historic lows. Also, financing remains accessible. Most firms, especially large ones, locked in low-cost capital when they had the chance and are now benefiting from that prudence.

The household picture is similarly resilient. Net worth is at an all-time high. Unemployment, at 4.1%, remains historically low. Jobless claims are stable. Perhaps most important, household debt service burdens are still below pre-COVID levels. Households don’t just spend out of income, they spend out of wealth. And with wealth up, spending power is stronger than the macro narrative might suggest.

Also, credit is still flowing. The Fed has already cut rates by 100 basis points since September 2024, and globally, this is shaping up to be the most coordinated rate-cutting cycle since the Global Financial Crisis. Money supply growth, which had turned negative in 2023, is now back in positive territory. Credit creation is the lifeblood of the economy and, for now, that blood is circulating.

Private real estate tells a similar story. During the eight calendar years since 1980 when the S&P 500 posted negative returns, private real estate delivered an average return of +6.2%, while the S&P fell by nearly -14%. With low correlations to public equities and a negative correlation to investment grade bonds, private real estate has provided a powerful source of diversification when it was needed most.

It’s not just about performance, it’s also about repositioning. In today’s market, where traditional diversification is breaking down and liquidity is still available, now may be the time to consider rebalancing toward private assets: equity, real estate, credit, and infrastructure. These aren’t panic moves—they’re strategic reallocations that could position portfolios for long-term durability.

In the section that follows, my colleague Mike Forman, Senior Managing Director in our Real Estate group, discusses one of the most compelling stories playing out in real time: the intersection of infrastructure, power, and digital transformation in Blackstone’s data center business.

This lens offers a different angle, but the message is consistent: Uncertainty doesn’t have to mean paralysis. With focus, patience, and a willingness to lean into change, investors can find real opportunities, even now. In moments of dislocation, history rewards the investor who tunes out the noise and keeps their head.