The U.S. economy is slowing down heading into 2026, and no one in the room is pretending otherwise. Invesco’s market analyst Ben Gutteridge said on Monday that “I’ve no doubt the U.S. economy is slowing.”

Economic growth is clearly cooling after that government shutdown, job creation is dipping, and yes, while this doesn’t mean a recession is guaranteed, investors aren’t ignoring the signs either. Some of them think this slowdown feels a lot like what happens right before everything tips over.

Q3 showed strength, but it’s fading fast

The third quarter gave a bit of a show. The Commerce Department said GDP likely expanded at an annual rate of 3.3%, and a Reuters poll of economists had backed that call. That number came off stronger consumer spending and business investment, but there’s a catch.

Most of that spending wasn’t organic growth. It was consumers rushing to buy electric vehicles before September 30, when tax credits for those cars expired.

The economy had already grown at 3.8% in Q2, so yes, Q3 looked good on paper, but only if you didn’t look too hard.

That government shutdown hit the economy directly. The Congressional Budget Office (CBO) estimated the shutdown could slash 1.0 to 2.0 percentage points off Q4 GDP.

While the CBO expects some of that to come back over time, it still thinks $7 billion to $14 billion in economic activity will be gone for good.

The Commerce Department is also expected to release early numbers for corporate profits and gross domestic income for Q3, which will offer more angles on where the slowdown is coming from. But so far, the slowdown’s there, no matter how you look at it.

European equities are gaining the upper hand

While the U.S. is dragging its feet, Europe is walking taller into 2026. Ben said Invesco expects European stocks to pull ahead, because the European Central Bank is cutting rates early next year.

Banks across the continent are also lending again. Big government spending is coming in through infrastructure and defense projects. On top of that, valuations are lower, and that matters to anyone actually buying.

The dollar hasn’t done much in the last six months, but Invesco expects it to weaken going forward. That shift would put European assets in a better light for global investors. “In part that would be because we think the dollar may weaken further from here,” Ben said.

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