Bad Vibes, Impending Gloom

A couple of days ago, in “Anomaly,” I noted that the so-called “vibecession” which defined Joe Biden’s economy not only lives on in 2025, but has by now morphed into “whatever the ‘vibes’ version of a depression is.”

Let’s take an etymological detour. It’ll be fun.

“Vibecession” wasn’t in the economic lexicon prior to the pandemic. Someone made that word up in the 2020s, and that someone’s Kyla Scanlon.

Kyla’s a cool person. I exchanged a few direct messages with her back when she was a nobody, and like all erstwhile nobodies who go on to become quasi-famous or even actually famous, she’s harder to get ahold of now that she’s a somebody. Or at least harder to get ahold of for someone who’s still unfamous. Someone like me. (It’s fine, though. I may be unfamous, but I’m also infamous in some people’s books. I shouldn’t be proud of that. But I am.)

Kyla should probably be getting royalty checks from the mainstream financial media given how ubiquitous her term is. I’m only half joking. When it became obvious to me (if not yet to her) that she was going to be some kind of famous, I remember asking her how, or even if, she was monetizing her newfound notoriety. I don’t remember her answer, but I do remember thinking, “Gosh, don’t leave money on the table, young lady.”

She subsequently wrote a book (a real one, published by Penguin Random House), was profiled in the Wall Street Journal (and Fortune), had a gig making videos for Bloomberg, got a mention on Barron’s 100 Most Influential Women in Finance list and on an on.

Bottom line: Kyla should be rich. Maybe she is. If not… well, suffice to say my experience with Gen Z — and I had this discussion with an acquaintance at the FT, who suggested I write an article about it — is that they don’t fully appreciate the extent to which a hustle you don’t efficiently monetize isn’t a hustle.

If you have 100,000 social media followers and you don’t drive a $100,000 car, you’re not doing something right. A lot of money was made — directly or indirectly — off the word “vibecession.” How much of that money ended up in Kyla’s pocket, I wonder? Probably not enough.

Anyway, Kyla’s vibecession — the phenomenon, not just the word — is still with us. There remains a yawning disparity between soft data like the University of Michigan sentiment survey and Conference Board confidence — which generally suggest American households have never been more depressed — and hard data which, some evidence of deterioration aside, is generally holding up ok, especially under the circumstances.

What happens if that changes? What happens if Donald Trump’s “burn it all down” program starts to manifest as an actual slowdown? After all, it’s not as if there’s no spillover potential. The transmission mechanism’s fairly straightforward.

“It should go without saying that the macro bear case [is] fully intact,” Nomura’s Charlie McElligott said this week. “[T]he economy’s getting dragged under the highest tariff levels in 90 years, hence ongoing capex crash potentials from lack of corporate visibility and of course the negative impact of higher prices on consumption and/or corporate margins.”

If you ask Goldman’s David Kostin, it’s best to just keep it simple given the high odds of slower growth. “Our expectations for below-trend economic growth and roughly unchanged UST yields through year-end suggest large-caps will likely outperform mid- and small-caps,” he wrote, in his latest, adding that “US economic growth is typically the most important driver of small-cap and mid-cap performance.”

The charts below are familiar, but they’re important. S&P 500 companies have virtually no floating rate debt, and three-quarters of their obligations are termed out to 2028 and beyond. By contrast, a third of small-caps’ debt is floating and just half their obligations are termed out over the longer run.

The figure on the right shows that the profit trend isn’t your friend if you’re small-caps: The share of the Russell 2000 with negative income is rising anew, while that for the S&P 500 is still functionally 0.

“Without a meaningful improvement in the market’s pricing of the economic growth outlook, small-cap and mid-cap equities will likely struggle to outperform,” Kostin went on, in the course of reiterating to clients that hiding out in large-caps is probably as good a strategy as any for the balance of the year.

BMO’s Ian Lyngen weighed in Tuesday on the “vibecession” dichotomy — i.e., on the juxtaposition between mood and real economy outcomes.

“It will still be some time before any decision paralysis triggered by the spike in uncertainty can be seen in the realized data, particularly as it relates to the pace of hiring,” he wrote. “As investors await evidence that the real economy has finally caught up to the Trump administration, the broader theme of impending gloom persists.”