Polymarket tracker: U.S. Recession Fears Ease in 2025

After months of recession anxiety, financial markets are swiftly repricing the risk of a U.S. downturn in 2025. Data from Polymarket shows the probability of a U.S. recession has plunged to 37%, down 14 percentage points in just days, following a sudden shift in macroeconomic sentiment.

One major reason for the improved outlook: a tentative U.S.-China trade agreement, reached last week, which has de-escalated tensions and brought some stability back to global supply chains. Mike Wilson, Chief U.S. Equity Strategist at Morgan Stanley—previously one of Wall Street’s most vocal bears—now argues that the worst is over.

“The Moody’s downgrade is just noise,” Wilson said. “With trade tensions cooling and earnings holding up, this is a prime opportunity to buy the dip.”

Moody’s Downgrade: A Fading Concern

Last week, Moody’s Investors Service became the last of the three major rating agencies to cut the U.S. credit outlook, citing ballooning fiscal deficits. But markets appear largely unshaken. Moody’s move follows earlier downgrades from S&P Global Ratings in 2011 and Fitch Ratings in 2023, and many investors now see such actions as backward-looking rather than predictive.

Wilson emphasized that despite the growing budget gap, the downgrade “does not meaningfully affect U.S. equity valuations or the near-term outlook for risk assets.”

Trade Truce and Corporate Resilience

The Polymarket chart (above) mirrors Wilson’s optimism, showing a sharp decline in recession bets following the trade breakthrough with China. The S&P 500, which had lagged international peers this year, staged a recovery and erased its year-to-date losses after the agreement.

More importantly, Wilson noted that the just-concluded earnings season offered a powerful counter to bearish narratives. Despite geopolitical noise and trade uncertainty, corporate profits have been revised upward—a rare phenomenon this late in the cycle.

“We’ve seen no material earnings damage from tariffs,” he said. “Markets are now pricing in a scenario where temporary trade softness is ignored in favor of longer-term growth.”

Tech Titans May Reclaim the Spotlight

Meanwhile, David Kostin, Chief U.S. Equity Strategist at Goldman Sachs, is sounding bullish on mega-cap tech. The so-called “Magnificent Seven”—Apple, Microsoft, Nvidia, Meta, Alphabet, Amazon, and Tesla—have underperformed the S&P 500 year-to-date, but Kostin sees that changing.

“Resilient tech earnings and strong secular tailwinds suggest these stocks could resume outperforming,” he said.

While some investors had begun rotating into international equities and cyclical names, Kostin believes that structural drivers, especially in AI, cloud, and productivity tech, remain intact—and may even accelerate.

Bottom Line: The Recession Risk Narrative Has Cracked

With recession odds falling, earnings trending up, and geopolitical tensions easing, the narrative has shifted decisively. Markets are no longer bracing for contraction—instead, investors are repositioning for a second-half rebound, driven by resilient fundamentals and receding macro threats.

While risks remain—from U.S. fiscal policy to renewed trade flare-ups—both Wilson and Kostin suggest that the path of least resistance now points upward for U.S. stocks.