Investing.com – The consensus forecast for a soft landing for the U.S. economy is wishful thinking, with the world’s largest economy likely to slip into recession later this year or in early 2025, according to BCA Research.
“We bucked the consensus that a U.S. recession is imminent in 2022,” BCA Research analysts said in a Sept. 27 note. “Then we predicted a complete end to inflation in 2023, so we remained tactically bullish on stocks.” But now we have joined the dark side and are calling for a recession to begin within the next six months. ”
The stock market welcomed the Fed’s decision to cut interest rates by 50 basis points earlier this month, according to the investment research firm, and that reaction was the start of two of the biggest easing cycles of the century, in January 2001 and September 2007. It was said that it reminded him of.
In both cases, the Fed surprised investors by cutting interest rates by 50 basis points. In 2001, it rose 5.0% on the day of an unexpected rate cut. In 2007, it rose 2.9%.
Unfortunately, in both cases, the stock price declined significantly in the months that followed. It wasn’t obvious at the time, but the Fed was behind the times. There is a high possibility that this time will be no different.
“We continue to expect the U.S. to enter a recession late this year or early 2025.”
The U.S. unemployment rate has already risen enough to trigger the Therm Rule, and other recession indicators are flashing red. Additionally, income growth is likely to decline over the next few quarters, keeping spending growth subdued.
“We have been tactically bullish on stocks for most of 2023, moving to benchmark early this year and then underweight at the end of June,” BCA Research said. “We expect the S&P 500 to fall to 3800 during the next recession.”
“We therefore recommend investors to be underweight in equities and overweight in government bonds.”
In 2025, it will fall to 3%, while the federal funds rate will reach 2%. The US dollar is expected to depreciate moderately in the coming months, but will likely appreciate during the next recession. Yen is our favorite currency heading into 2025.
