TD Securities expects US GDP growth of 2.3% (q/q annualised) in Q4 2025, after two stronger quarters. It says growth is cooling because consumers are spending less, federal government spending is falling, and net exports are weaker.
It expects AI-related spending to keep supporting non-residential fixed investment. The firm will revisit its 2.3% Q4 forecast after the December data on durable goods, inventories, and trade, ahead of Friday’s GDP report.
Key Macro Watchpoints
In the same week, it expects December PCE inflation to rise. It also sees growth drifting back toward its long-run potential by the end of 2025. TD Securities links this to a trade policy shock from the Trump administration and a less restrictive Fed in 2025 as the labor market cools.
Looking ahead, it projects GDP growth of about 2.3% (Q4/Q4) in 2026, similar to 2025. It forecasts the unemployment rate at 4.2% by Q4 2026, with the labor market continuing to stabilize through the end of 2026.
TD Securities puts the odds of a US recession in the next year at 25%.
We are now seeing the expected slowdown. The advance estimate for Q4 2025 GDP growth came in at 2.1%, confirming a step down from last year’s stronger pace. A 25% recession risk is still on the table, and major trade policy changes add uncertainty. Even so, implied volatility looks low. We think it makes sense to buy options that benefit from bigger market moves, such as VIX calls or index straddles, in the weeks ahead.
Rates Volatility And Policy Risk
The Fed’s rate cuts in 2025 were a response to a softer labor market. But the January 2026 jobs report showed unemployment holding at 3.9%. Also, December 2025 PCE inflation ticked up to 3.1%, which is not what the Fed wants to see. This points to the Fed staying on hold. That makes derivatives that benefit if there are no further rate cuts in the first half of 2026 look more attractive.
The outlook also points to a split market. AI investment may keep supporting technology stocks even as the broader economy slows. That gap showed up in the latest earnings season: semiconductor firms beat expectations, while many consumer-focused companies guided lower. We can trade this theme with options—for example, by selling call spreads on broad indexes while staying long targeted tech ETFs.
Larger tax refunds in the first half of 2026 could give consumers a temporary boost. The stimulus periods in 2020 and 2021 showed that these boosts can be strong but short-lived. This could create a short-term opportunity in consumer discretionary stocks, but we should be ready for spending to fade back to a weaker trend by summer.
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