This analyst calls the S&P 500 a ‘video game’ detached from reality
Analysts warn the wobbly real economy could soon spill into financial markets, which, after all, depend on it.
As InvestorsObserver reported Thursday, weakening freight activity has pulled the U.S. closer to a “goods recession,” with production industries continuing to struggle.
That has widened the gap between the real economy and the stock market, which continues to trade near record highs.
Edward Dowd, author and founder of Phinace Technologies, a global macro investment firm, cautions that the disconnect won’t last forever.
“The goods economy is a euphemism for the real economy, not the video game economy known as the S&P 500,” Dowd wrote. “Eventually, the downturn of the cash flows from the real economy affects the video game financial economy.”
The "goods economy" is a euphemism for the real economy not the video game known as the $SPX.
undefined Edward Dowd (@DowdEdward) November 5, 2025
Eventually the downturn of the cash flows from the real economy affects the video game financial economy. It's starts with bankruptcy upticks, layoffs and banks pulling back loans.… https://t.co/PJCjXJq7T4 pic.twitter.com/0KK68ZgVzo
Dowd said the biggest red flags will come in the form of rising layoffs, an increase in bankruptcy filings, and weaker corporate earnings.
While investors have largely shrugged off negative headlines, Dowd warns that such complacency often precedes forced selling. He shared a chart showing that leverage in the stock market is currently at its highest level in decades relative to the total money supply.
That level, Dowd notes, sits firmly in “greed” territory and is roughly comparable to the peaks seen before the 2008 financial crisis. If history is any guide, he suggests, such leverage could be a troubling sign of what’s to come.
Shedding light on the disconnect between stocks and the economy
While the apparent disconnect between the stock market and the broader economy may seem counterintuitive, Stu Morrow, investment counsellor at Mawer Investment Management, said it reflects the market’s forward-looking nature.
Stock markets are “inherently forward-looking,” Morrow said. “Markets routinely price in anticipated developments, including policy actions and sentiment shifts, long before the official data reflects a turnaround.”
One of the most forward-looking narratives driving today’s market is the widespread belief that artificial intelligence will have a transformative impact on the global economy.
That enthusiasm has fueled significant market gains, but it has also introduced growing concentration risks, as much of the performance has been driven by a handful of large technology companies.
As InvestorsObserver recently reported, AI has become the lifeblood of the current bull market, accounting for the lion’s share of the S&P 500’s total returns this year.
JPMorgan data show that while only about 8% of S&P 500 companies are directly tied to AI, they now account for roughly 47% of the index’s total market capitalization.