MW Meredith Whitney famously called the 2008 financial crisis. Here's the new problem with the U.S. economy, she says

By Barbara Kollmeyer

Stock market will have to navigate a 'bifurcated economy'

Meredith Whitney, pictured in 2023, says a 'bifurcated' U.S. economy spells trouble.

Nearly two decades ago, financial analyst Meredith Whitney earned the moniker as the "Oracle of Wall Street" for her bearish views on banks ahead of the global financial crisis.

Featured in "The Big Short" book on that crisis, author Michael Lewis likened her to E.F. Hutton at the time - she talked, people listened - though she got no mention in the movie by the same name.

The CEO and founder of the Meredith Whitney Advisory Group has been spotting trouble on the horizon again, saying the U.S. faces a "bifurcated economy" driven by the high-end consumer.

In a Tuesday interview with MarketWatch, Whitney stood by a prediction she made earlier this year, that over 50% of U.S. households - many living paycheck to paycheck - faced a second recession of losing jobs, after one in 2022-2023 when stimulus checks ended.

"To me, the weakest portion of the U.S. economy, which employs over 20% of U.S. workers, is hospitality and leisure," she said. Those that jobs pay under $60,000, may see the biggest hits when jobs numbers worsen.

"I think employment is going to be a really big pickle," Whitney said, adding that stagflation - rising jobless numbers and sticky inflation - is a "real possibility." That's as college graduates are having an incredibly difficult time in getting first jobs, just as student debt payments resume, which she notes is straining multiple generations.

Whitney turned bullish on dollar stores like Dollar General $(DG)$ and Dollar Tree $(DLTR)$ late last year, "thinking the worst was over," but moved away from that view in May. "I think the dollar stores are going to be challenged -- we'll see in a couple of weeks when they report -- because their customer base will be the most economically challenged," she said.

She now prefers "higher-end retailers" like Home Depot $(HD)$, Lowe's $(LOW)$ and Walmart $(WMT)$. Those companies "don't scream 'high end,' but we argue that the fact that more of their customers are homeowners, and homeowners and the high end are the only households with a financial safety net, is significant," Whitney told clients in a separate note.

Whether or not consumers continue to spend comes down to home ownership, according to Whitney, who said homeowners increasingly began to tap into their home equity a little over a year ago, reversing a 17-year cycle of declining equity-home loans.

"So from a peak of around $700 billion, that went down closer to $250 billion to $240 billion and that's now increasing. And home equity is actually the fastest growing loan category of any consumer-loan product," with credit cards, student and auto loans flat, she said.

She's bullish on companies in that space of home equity, personal loans and cash-out refinances. Those include Rocket $(RKT)$, SoFi Technologies $(SOFI)$ and Affirm Holdings (AFRM) - those stocks have doubled or more this year.

That's as the housing market itself is headed for its worst market in decades, in terms of activity, Whitney, said backing up a prediction she made a month ago. "Existing-home sales are tracking under 4 million on an annualized basis and that's the worst in over 25 years. Buyers are looking for steep discounts and sellers are not willing to make those discounts," she said.

The trouble is that an estimated 60% of homes are owned by those over 55, who aren't selling, partly as lower-cost downsizing options are limited, she said. "So either these folks have no mortgage or a small mortgage and the capital gains that they have to take and the costs that are required to move are prohibitive," she said, adding that boomers may not be as wealthy as many think.

Stuck with limited alternatives, they are tapping tapping into equity in their homes, accounting for 41% of total home equity debt, she said..

That, of course is counterintuitive because individuals tend to get more conservative with money as they age, but are now struggling with increasing costs of owning a home - property insurance has risen well north of 60% over the past five years, she noted.

"Given the fact that 60% of homes are owned by seniors, that is the clear issue with affordable housing, because there's just an inventory lock," said Whitney.

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are under pressure, after big technology stocks drove S&P 500 SPX and Nasdaq COMP losses on Tuesday. Treasury yields BX:TMUBMUSD10Y are inching up and oil (CL00) is also positive.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              6411.37    -0.53%  1.61%   9.01%    14.55% 
   Nasdaq Composite                                                     21,314.95  -1.69%  2.02%   10.38%   19.63% 
   10-year Treasury                                                     4.322      7.70    -6.60   -25.40   51.70 
   Gold                                                                 3361.1     -1.13%  -2.41%  27.35%   31.70% 
   Oil                                                                  62.04      -1.65%  -5.21%  -13.68%  -15.12% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Target (TGT) named a new CEO as it beat earnings expectations in the second quarter.

Lowe's (LOW) hiked its full-year guidance and said it was buying Foundation Building Materials for $8.8 billion.

Toll Brothers $(TOL)$ slashed full-year home-deliveries guidance, and shares of the homebuilder are slipping.

After weeks of talks between McDonald's $(MCD)$ and its restaurant chains, the cost of Big Mac meals is reportedly coming down.

Minutes of the July Federal Open Market Committee meeting are due at 2 p.m., with an appearance by Fed. Gov. Christopher Waller at 11 a.m. ahead of that. Later, Atlanta Fed President Raphael Bostic will speak.

Best of the web

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Hotter summers and overcrowding threaten Europe's tourist economies.

The chart

Tuesday was notable in other ways, such as a burst of energy for value plays, while momentum stocks sagged, as the chart shows. That "smells a lot like the clean-out in the AI trade we saw last January, when the release of DeepSeek drove a temporary market panic over the outlook in the space," said analysts at Bespoke Investment Group.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   PLTR    Palantir 
   OPEN    Opendoor 
   AMD     Advanced Micro Devices 
   INTC    Intel 
   TSM     Taiwan Semiconductor Manufacturing 
   NIO     NIO 
   AMZN    Amazon 
   GME     GameStop 

Random reads

India's poor buy meals with plastic garbage at one cafe.

Archaeologists are building a 13th century fortress in France.

-Barbara Kollmeyer

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August 20, 2025 06:52 ET (10:52 GMT)

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