US Headed For Deep Recession, Stocks Could Fall 30%, Analyst Warns

There may be trouble ahead for the US stock market, according to BCA Research.

In a note to clients last week, Peter Berezin, chief global strategist at BCA Research, warned that, contrary to popular belief, the economy will enter a recession this year or early 2025.

If that happens, the S&P 500 could fall to 3,750 points, a 30% drop from current levels.

Berezin’s forecast is based on the belief that the labor market will slow significantly in the coming months, weighing heavily on consumer spending, a major driver of economic growth. The relationship between inflation and unemployment is measured by what is known as the “Phillips curve.”

“The reason the US avoided a recession in 2022 and 2023 is because the economy was operating on the steep side of the Phillips curve,” he wrote. “When the labor supply curve is nearly vertical, lower labor demand will primarily lead to lower wage growth and fewer job openings. In other words, perfect disinflation.”

Berezin also predicts a generalized economic crisis, with a marked slowdown in growth in Europe and China. This scenario could further weaken global growth and weigh heavily on international stocks.

Stocks hit a new record high in mid-May, with the Dow Jones Industrial Average surpassing 40,000 for the first time in its history, but have since fallen from those highs.

Stock indexes opened lower Monday morning as investors awaited key employment data from the Labor Department. The benchmark S&P was down about 12 points by midmorning.

BCA Research’s forecast – one of the darkest on Wall Street – comes after a volatile year for the market.

All three indexes fell in mid-2023 on concerns that the Federal Reserve would raise interest rates higher than expected and keep them at record lows for longer. But they have recovered those losses and more, with the S&P 500 up more than 29% since bottoming in late October.

Since the beginning of the year, the benchmark index has gained about 15%, while the Dow Jones Industrial Average has climbed 3.7%. The tech-heavy Nasdaq Composite has gained about 20% since the beginning of the year.