This could result in increased pressure on global stock markets.
The Great Recession of 2008-2009 left its scars unhealed, and the Covid-19 economic downturn dealt the US one more blow. Concerns regarding the instability of the financial markets are now resurfacing. BCA Research, a Canadian investment research organisation, predicts volatility in the US stock market going forward.
According to Fox Business, in a note to clients last week, BCA Research chief global strategist Peter Berezin warned that, contrary to popular belief, the economy will fall into a recession either this year or in early 2025. Should that happen, the S&P 500 could tumble to 3,750, which marks a 30% drop from current levels.
Berezin's prediction hinges on the belief that the labour market will slow notably in the coming months, which will weigh heavily on consumer spending, a major driver of economic growth. The relationship between inflation and unemployment is measured by something called the "Phillips curve."
"The reason the U.S. avoided a recession in 2022 and 2023 was because the economy was operating along the steep side of the Phillips curve," he wrote. "When the labour supply curve is nearly vertical, weaker labour demand will mainly lead to lower wage growth and falling job openings. In other words, an immaculate disinflation."
Berezin also predicts broad economic challenges, including notable slowdowns in growth in China and Europe. This could contribute to the weakening of the global economy and increase pressure on international stock markets.
The Dow Jones Industrial Average broke through 40,000 for the first time in mid-May, setting a new record high. It has now dropped from those peaks, though.
This prediction, which might rank among the most pessimistic on Wall Street, comes after a turbulent year for the market.