Investing.com – The consensus expectation of a soft landing for the US economy is wishful thinking, and the world’s largest economy will enter a recession later this year or early 2025, according to BCA Research.
“We are pushing back against the consensus narrative in 2022 that a US recession was imminent,” analysts at BCA Research said in a September 27 note. “We then forecast flawless disinflation by 2023, which kept us tactically optimistic on equities. But now we have joined the dark side and are calling for the outbreak of a recession within the next six months.”
Stocks cheered the Fed’s decision to cut rates by 50 basis points earlier this month, the investment research firm noted, a reaction that harked back to January 2001 and September 2007, which also marked the start of the two biggest easing cycles of this century.
In both cases, the Fed surprised investors by cutting rates by 50 basis points. In 2001, interest rates rose by 5.0% on the day of the unexpected interest rate cut. In 2007 it increased by 2.9%.
Unfortunately, in both cases, stocks fell significantly in the following months. At the time, the Fed was behind the curve, even if it wasn’t clear at the time. This time it will probably be no different.
“We continue to expect the US to fall into a recession later this year or early 2025.”
US unemployment has already risen enough to trigger the Sahm rule, while other recession indicators are also flashing red. Moreover, income growth is likely to decline in the coming quarters, which should dampen expenditure growth.
“We were tactically bullish on equities for most of 2023, switched to the benchmark early this year and then went underweight in late June,” BCA Research said. “We expect the S&P 500 to fall to 3800 during the next recession.”
“Accordingly, we recommend that investors consider equities and government bonds.”
It will fall to 3% in 2025, while the Fed Funds rate will reach 2%. The US dollar should weaken slightly in the coming months, but then strengthen during the next recession. The yen is our favorite currency for 2025.
