Move over, JPMorgan — we have a new contender for many apocalyptic stock-market predictions.
This comes courtesy of Peter Berezin, international strategist at BCA Analysis, who said in a report shared with MarketWatch on Thursday that he has revised his target for the S&P 500 SPX to 3,750 – JPMorgan World Analysis of the Year Not till. Final target of 4,200, East Wall Side Road low – due to expectations that the US will soon enter a surprise and surprising recession. Berezin expects the recession to start later this year or as early as 2025.
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If that happens, the S&P 500 could fall more than 30% from Friday’s levels, according to his forecast.
With problems possibly getting worse for markets, Berezin is hopeful that business pain may normalize. He expects growth in Europe – which is only the base to grow – gradually. And China, still suffering from the deflation of the real estate bubble, may also bow out.
The result is that, in this situation, international expansion will be greatly weakened, which will weigh on international stocks.
As far as the US is concerned, Berezin’s thesis is based on the assumption that a recession in the labor market is set to escalate soon – putting enormous pressure on consumer spending, a key fiscal driving force.
He pointed out several signs that the busy lives of recruiters during the pandemic have given way to becoming somewhat less attractive to employees. As reliable job-opening knowledge demonstrates, the selection of conceivable positions is significantly reduced, as well as the abandonment charges. And individual surveys of the opening of activity reiterate a much more dramatic decline.
In the same future, the data from the diligence section shows that the life of salary increases have slowed down.
There were also signs that consumer spending is slowing in recently released economic data, including Friday’s personal-consumption expenditure price index for May.
However, Berezin believes this may be the most effective start, as a suddenly weak labor market could lead to a vicious cycle.
Information on deposit balances already demonstrates that low-income US citizens have exhausted their pandemic-era financial savings. As delinquency rates for credit cards and auto loans – already at levels unseen since 2010 – continue to rise, banks may decide to increase their lending requirements, including the pressures facing patrons. Are.
As patronage slows, Berezin expects companies to slow their spending on capital works.
Certainly, data collected by BCA, which tracks companies’ spending plans, suggests that many are already preparing to cut capital expenditures, or “capex,” even as artificial-intelligence developments continue. , the chips business and Wall Side’s ongoing replenishment features Rode believes should increase this type of spending.
Once the recession envisioned by Berezin comes, the Fed probably won’t step in to stop it – at least not today. Fed Chairman Jerome Powell and his aides won’t be tempted to behave until it already happens, much earlier than scheduled, due to concerns about rekindling another wave of inflation.
And financial coverage probably won’t provide much support. According to reliable Congressional Fund Office estimates, the funding shortfall is already projected to grow to 7% of GDP in 2024. At present, America desperately needs fiscal discipline, not increased spending that is now inadequate.
Because of this, no matter who wins in November, the bond market will likely rebel against any efforts to increase non-funded spending.
The BCA recommended that consumers reduce the duration of their equity holdings, increasing their allocation to bonds and cash in the future.
However, for those more sensitive to tactical trades, Berezin recommended something including shorting the price of Bitcoin BTCUSD and betting that a decline in bond yields would cause the US Dollar DXY basis to fall against the Japanese Yen USDJPY. Will go. Berezin expects that if his bearish stance plays out, the discount on 10-year Treasury term BX:TMUBMUSD10Y could fall by a few%, leading to a reduction in the fed-funds target rate to 2%.
By comparison, the 10-year was at 4.34% as of Friday, leaving the fed-funds target rate between 5.25% and 5.5%.
For its part, Marko Kolanovic, executive strategist at JPMorgan, reaffirmed his target for the S&P 500, which is calling for the index to loosen more than 23% from the flow level by the end of the year.
Discounting this future, Funding Deposit expects US expansion to remain average during the second half of 2024, in keeping with JPM’s midyear outlook.
The underfunding of funding deposits for stocks is in line with the notion that the megacap names that have driven most of the market rally in the past year face a higher top bar to inspire investors with their profits and forecasts. Will have to.
According to Kolanovic, investor sentiment and valuations for these names already look elevated. Because of this, sometimes, the artificial-intelligence industry that has been cornering the market should reverse – and when that happens, the S&P 500 should see a significant decline.
US stocks were falling into the red on Friday afternoon, as the S&P 500 and Nasdaq Composite COMP struggled in their attempt to end the first quarter of 2024 at record highs. Both indexes were falling more than 0.1%, while the Dow Jones Business Medium DJIA fell 0.3%.
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