US Economic Growth Boasts Record Highs, But Jobless Expansion and Stalled Retail Sales Raise Doubts

The US economy is apparently on a tear, if you believe the headlines. President Trump, never one for understatement, says his new Fed pick Kevin Warsh can get growth to 15%. Peter Navarro is on TV declaring tariffs have "unleashed" a massive wave of investment. The Dow Jones is clocking fresh all-time highs, up 200 points at the open. If you squint, it looks like the Goldilocks scenario: stocks up, growth up, animal spirits unleashed. But the data, as always, has a way of ruining a good story.

Let’s start with the inconvenient truth: US retail sales just flatlined in December. Not dipped, not soared, just…stalled. Eight out of thirteen retail categories saw declines during what should have been the most wonderful time of the year. Economists, ever the optimists, had penciled in a gain. Instead, the consumer, the supposed engine of the American economy, put their wallet back in their pocket. The Wall Street Journal’s take: “Economists had been expecting sales to increase despite concerns about a fragile consumer economy.” Translation: the consumer is fragile, and the data just confirmed it.

Meanwhile, the phrase of the week is “jobless growth.” Frances Donald, chief economist at RBC, says the US is experiencing economic growth without the jobs to back it up. That’s not the kind of growth that wins elections or sustains bull markets. It’s the kind that makes central bankers nervous and traders twitchy. The AI-led software selloff is now bleeding into the $1.5 trillion US credit market, according to Morgan Stanley. When tech stumbles, the dominoes don’t just fall in Silicon Valley. They shake the entire risk complex.

So what gives? How can stocks keep setting all-time highs while the real economy looks increasingly wobbly? The answer, as always, is liquidity. The market is still awash in it, thanks to years of easy money and a Fed that talks tough but acts dovish. But the cracks are showing. The breadth of the rally is narrowing, with European indices like the FTSE 100, CAC 40, and MIB 40 showing hesitation in the uptrend. The AI trade, which powered much of last year’s gains, is starting to look tired. The MSCI World Index eked out a 2% gain last month, but performance diverged sharply across sectors and geographies.

The US consumer, long the linchpin of global growth, is now a source of anxiety. Flat retail sales in December are not just a blip, they’re a warning. The holiday season is supposed to be a layup for retailers. When eight out of thirteen categories go negative, you have to wonder if the consumer is tapped out. Credit card delinquencies are ticking up, and wage growth is struggling to keep pace with inflation. The narrative of the invincible American shopper is starting to fray.

And yet, the market powers on. The Dow sets a new all-time high, seemingly oblivious to the cracks beneath the surface. This is the kind of price action that makes old-school traders reach for the Tums. Breadth is narrowing, leadership is rotating, and the rally is being carried by fewer and fewer names. The AI trade is still alive, but it’s no longer carrying the entire market on its back.

The risk, of course, is that the market is pricing in perfection at a time when the real economy is anything but. If retail sales remain weak and jobless growth persists, the Fed may be forced to pivot sooner than expected. That could mean more volatility, not less. The credit market is already flashing warning signs, with spreads widening and liquidity thinning. If the AI-led software selloff accelerates, the dominoes could fall fast.

Strykr Watch

Technical levels are telling a story of their own. The Dow Jones is at all-time highs, but momentum indicators are flashing caution. RSI is flirting with overbought territory, and breadth indicators are rolling over. The S&P 500 is flirting with resistance, and the Nasdaq’s leadership is looking shaky as AI names lose steam. European indices are pausing, unable to find enough momentum to continue the uptrend. The tape is choppy, and the path of least resistance is no longer straight up.

Keep an eye on credit spreads, which are starting to widen as risk appetite fades. The US 10-year yield is holding steady, but any sign of a hawkish Fed could trigger a selloff in risk assets. The VIX is subdued, but that’s more a sign of complacency than confidence. Watch for a spike in volatility if the data continues to disappoint.

Retail stocks are on the ropes after the December sales miss. Consumer discretionary is underperforming, and the rotation into defensives is picking up steam. The market is telling you to be selective, not aggressive.

The next big data point is the Fed’s reaction to the jobless growth narrative. If Powell blinks, expect a rally in rates-sensitive sectors. If he holds the line, risk assets could face a reckoning.

The tape is fragile, and the market is living on borrowed time.

If the rally fails to broaden, expect a swift correction as the air comes out of the bubble. But if breadth improves and the consumer finds their footing, the bull case is still alive.

The opportunity is to trade the rotation, not the index. This is a stock picker’s market, not a passive investor’s paradise.

Strykr Take

The US economy is sending mixed signals, and the market is whistling past the graveyard. Retail sales are stalling, jobless growth is the new normal, and the AI trade is losing steam. This is not the time to chase highs. Be selective, manage risk, and watch for the cracks to widen. The next move will be fast and unforgiving.

datePublished: 2026-02-10 15:46 UTC