TD Securities forecasts US GDP growth of 2.3% q/q annualised in Q4 2025, after two stronger quarters. It links the slowdown to softer consumer spending, falling federal government outlays, and weaker net exports.
It expects AI-related spending to keep supporting non-residential fixed investment. The firm plans to review its 2.3% Q4 forecast after December durable goods, inventories, and trade data, ahead of the GDP release on Friday.
Key Macro Watchpoints
For the same week, it expects December PCE inflation to rise. It also projects output growth to drift back towards potential by the end of 2025, citing a trade policy shock from the Trump administration and a less restrictive Fed stance in 2025 as the labour market softens.
Looking further ahead, GDP growth is projected at about 2.3% Q4/Q4 in 2026, similar to 2025. It forecasts the unemployment rate at 4.2% by Q4 2026, alongside continued labour market stabilisation through the end of 2026.
TD Securities puts the odds of a US recession over the next year at 25%.
We are now seeing the anticipated economic slowdown, with the advance estimate for Q4 2025 GDP growth coming in at 2.1%, confirming a moderation from the stronger pace seen last year. With a 25% chance of recession still on the table and significant trade policy changes creating uncertainty, implied volatility seems low. We believe buying options that profit from increased market swings, such as VIX calls or index straddles, is a sensible strategy for the weeks ahead.
Rates Volatility And Policy Risk
The Federal Reserve’s policy easing throughout 2025 was a reaction to the labor market softening at the time. However, the most recent jobs report from January 2026 showed the unemployment rate holding firm at 3.9%, while the latest PCE inflation data for December 2025 showed an unwelcome uptick to 3.1%. This suggests the Fed is likely to remain on hold, making derivatives that bet against further rate cuts in the first half of 2026 look attractive.
The outlook suggests a split in the market, where AI-related investment provides strong support for technology stocks while the broader economy cools. This divergence was clear in the last earnings season, where semiconductor companies outperformed while many consumer-facing firms guided lower. We should consider using options to trade this theme, for example, by selling call spreads on broad market indexes while staying long on specific tech industry ETFs.
The expected support from larger tax refunds in this first half of 2026 should provide a temporary lift to consumer spending. Looking back to the stimulus effects in 2020 and 2021, we know these boosts can be powerful but short-lived. This may create a short-term trading opportunity in consumer discretionary names, but we should be ready to position for a return to a weaker trend by the summer.
