Economist Nouriel Roubini sees a ‘mini stagflationary shock’ coming in the second half of 2025

Economist Nouriel Roubini, known as "Dr. Doom," projects a "mini stagflationary shock" in the second half of the year, anticipating core PCE inflation to reach 3.5% and economic growth to weaken, potentially turning negative, with Federal Reserve rate cuts delayed until at least December. While not forecasting a market crash, Roubini's outlook underpins the strategy of his Atlas America Fund (USAF), a multi-asset ETF with $17 million in assets under management. Launched last November, USAF has gained over 5% and demonstrated defensive resilience, notably during the April tariff announcements, by significantly outperforming broader market drawdowns. The fund's portfolio, which includes substantial allocations to gold (partially driven by a long-term de-dollarization thesis), short-term U.S. government debt, agricultural commodities, and recent additions of defense tech/cybersecurity stocks, is designed for steady growth amidst economic risks.

Analysis

Economist Nouriel Roubini projects a challenging second half for the U.S. economy, characterized by a 'mini stagflationary shock.' This forecast anticipates the core Personal Consumption Expenditures (PCE) index reaching approximately 3.5% by year-end, coupled with weakening, and potentially negative, economic growth. Consequently, he expects the Federal Reserve to delay any rate cuts until at least December. This macroeconomic view informs the strategy of the Atlas America Fund (USAF), a multi-asset ETF he co-manages. Despite its small size of roughly $17 million in assets and thin trading volume, USAF has demonstrated defensive capabilities since its November inception, gaining over 5%. While this trails the S&P 500's broad rally, the fund's resilience was notable during the market stress following the April 2 tariff announcements, where it experienced a drawdown of less than 3%. The fund’s portfolio is tactically positioned with significant holdings in gold, short-term U.S. government debt, and agricultural commodities, reflecting a hedge against inflation and a long-term de-dollarization thesis. Recent portfolio adjustments include adding exposure to defense technology, cybersecurity stocks, and short-term inflation-protected bonds, while reducing real estate holdings, indicating an active approach to navigating perceived economic risks.

Key Decisions for Investors

• Investors concerned about the 'mini stagflationary shock' scenario should evaluate funds like USAF, which are explicitly structured with holdings in gold, commodities, and inflation-protected bonds to mitigate such risks.
• The Atlas America Fund's performance during the April market drawdown suggests it could be considered as a defensive diversifier to reduce portfolio volatility during periods of geopolitical or economic stress.
• Note the fund's relatively small asset base of $17 million and its thin trading volume, which could pose liquidity risks and potentially lead to wider bid-ask spreads compared to larger ETFs.
• The fund's strategic overweight to gold, driven by a long-term de-dollarization view, and its recent additions in defense and cybersecurity, offer specific thematic exposures that align with a more cautious global outlook.