Peter Berezin, Chief Global Strategist at BCA Research, has issued a stark forecast for the S&P 500, predicting a drop to 3,750 by year-end.
Berezin anticipates a sudden and unexpected U.S. recession beginning either later this year or early 2025, which could cause the S&P 500 to decline by over 30% from its current levels.
He also foresees widespread economic pain, with growth slowing in Europe and China struggling post-real-estate bubble collapse. This scenario would weaken global growth and exert downward pressure on international stocks.
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Ordinary consumers will be the worst-hit category
Berezin’s thesis hinges on a rapidly decelerating labor market, which he believes will significantly impact consumer spending, a critical economic driver. Indicators such as a substantial fall in job openings, the quit rate, and a slowdown in wage growth suggest a labor market losing momentum.
Recent economic data also shows signs of slowing consumer spending. Berezin warns that this could start a vicious cycle, with depleted pandemic-era savings among lower-income Americans and rising delinquency rates for credit cards and auto loans prompting banks to tighten lending standards.
Consequently, businesses might reduce spending on capital projects, as evidenced by BCA’s data on capex plans.
Fed’s hesitancy will worsen the recession, but there are tactics to survive
Chief Global Strategist at BCA Research predicts that the Federal Reserve will be hesitant to intervene immediately in the event of a recession due to fears of triggering another inflation wave. This reluctance could mean delayed action from Fed Chair Jerome Powell and his colleagues.
Fiscal policy is also unlikely to provide relief, given the already substantial budget deficit projected to reach 7% of GDP in 2024. Any attempts to increase unfunded spending could face resistance from the bond market. BCA has advised clients to reduce equity holdings and increase allocations to bonds and cash.
Berezin suggests shorting Bitcoin (BTC) and betting on a weaker U.S. dollar against the Japanese yen for tactical trades. If his recession scenario unfolds, he expects the yield on the 10-year Treasury note to fall to 3% and the Fed funds target rate to be cut to 2%.
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