Stocks will fall 30% as the U.S. economy heads for a painful recession

Stocks will fall 30% as the U.S. economy heads for a painful recession

Via Marketwatch

Move over, J.P. Morgan — we have a new contender for most apocalyptic stock-market forecast.

It comes courtesy of Peter Berezin, chief global strategist at BCA Research, who said in a report shared with MarketWatch on Thursday that he has revised down his target for the S&P 500 SPX to 3,750 — lower than J.P. Morgan Global Research’s year-end target of 4,200, the previous Wall Street low — due to expectations that the U.S. will soon enter a sudden and unexpected recession. Berezin expects that recession to begin either later this year or in early 2025.

Should that transpire, the S&P 500 could decline more than 30% from Friday’s levels as a result, according to his forecast.

Potentially making matters worse for markets, Berezin expects the economic pain will be widespread. He expects growth in Europe — which is only just starting to pick up — to slow. And China, which is still struggling in the aftermath of the collapse of a real-estate bubble, could also succumb.

The upshot is that, in this scenario, global growth would weaken at large, weighing on global stocks.

As far as the U.S. is concerned, Berezin’s thesis is rooted in the notion that a slowdown in the labor market is poised to accelerate rapidly — heaping enormous pressure on consumer spending, a key economic driver.

He rattled off a number of indicators suggesting that the torrid pace of pandemic-era hiring has given way to something far less appealing to workers. As official job-openings data show, the number of open positions have fallen substantially, as has the quit rate. And private surveys of job openings reflect an even more dramatic decline.

There have also been signs that consumer spending has been slowing in recently released economic data, including Friday’s personal-consumption expenditures price index for May.

But Berezin believes this could be only the beginning, as a suddenly enfeebled labor market may kick off a vicious cycle.

Data on bank balances already show that lower-income Americans appear to have depleted their pandemic-era savings. As delinquency rates for credit cards and auto loans — already at levels unseen since 2010 — continue to climb, banks could opt to raise their lending standards, adding to pressures facing the consumer.

As the consumer slows, Berezin expects businesses could slow their spending on capital projects.

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