Hold onto your hats, Wall Street—Peter Berezin, chief global strategist at BCA Research, has unveiled a chilling forecast.
He predicts the S&P 500 will tumble to 3,750, significantly below J.P. Morgan’s already bearish target of 4,200, driven by an unexpected U.S. recession expected to hit late this year or early 2025.
Berezin warns of a 30% drop in the S&P 500 from current levels if this downturn unfolds.
His grim outlook extends globally, anticipating Europe’s nascent recovery to stall and China’s ongoing real estate woes to deepen, potentially dragging down global growth and stock markets.
In the U.S., Berezin’s bleak scenario hinges on a swiftly deteriorating labor market. Pandemic-era hiring booms are fizzling, with job openings and quit rates plummeting, while wage growth decelerates.
This labor market slump could ignite a vicious cycle, squeezing consumer spending—vital for economic health.
Recent data, including May’s personal-consumption expenditures price index, already show signs of slowing consumer activity.
Lower-income Americans, having exhausted pandemic savings, face rising credit card and auto loan delinquencies, the highest since 2010. This could prompt banks to tighten lending, exacerbating consumer woes.
As consumers pull back, businesses might slash capital expenditures despite the AI boom, the CHIPS Act, and reshoring trends. BCA data reveals many firms are already planning capex cuts.
Berezin doubts the Federal Reserve will intervene swiftly to curb the recession, wary of reigniting inflation.
Fiscal policy won’t offer much relief either, with a projected budget deficit hitting 7% of GDP in 2024. Any attempts to boost spending could face resistance from the bond market.
BCA advises clients to shift from equities to bonds and cash.
For tactical trades, Berezin suggests shorting Bitcoin and betting on a falling U.S. dollar against the yen, predicting the 10-year Treasury yield could drop to 3%, with the fed-funds rate cut to 2%.
Meanwhile, J.P. Morgan’s Marko Kolanovic maintains a similarly bearish stance, expecting the S&P 500 to fall over 23% by year-end.
Kolanovic points to the high valuation and investor expectations of mega-cap stocks, suggesting an imminent reversal in the AI-driven market rally.
As of Friday afternoon, U.S. stocks were dipping, with the S&P 500 and Nasdaq Composite each down over 0.1%, and the Dow Jones Industrial Average off by 0.3%.
The market’s struggle to end the first half of 2024 on a high note underscores the volatility ahead.
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