The aftermath of the Great Recession of 2008-2009 has still not been fully recovered from, and the recent economic downturn due to Covid-19 has added to the woes in the United States. Concerns about the stability of financial markets are resurfacing with BCA Research, a Canadian investment research organization, predicting volatility in the US stock market in the days ahead.
According to a report by Fox Business, BCA Research’s chief global strategist Peter Berezin has warned clients that the economy could slip into a recession either this year or in early 2025. This prediction suggests that the S&P 500 could see a significant drop to 3,750, marking a 30% decrease from current levels if a recession were to occur. Berezin’s forecast is based on the assumption that the labor market will slow down significantly in the near future, putting a strain on consumer spending, which is a key driver of economic growth.
Berezin points to the relationship between inflation and unemployment, as represented by the Phillips curve, to support his analysis. He highlights that the US economy was able to avoid a recession in recent years due to its position along the steep side of the Phillips curve, where weaker labor demand led to lower wage growth and fewer job openings, resulting in disinflation. However, he now anticipates challenges in economic growth, including slowdowns in China and Europe, which could impact the global economy and put pressure on international stock markets.
Despite the Dow Jones Industrial Average reaching a record high of 40,000 in May, the market has since experienced a drop from those levels. Berezin’s prediction may be one of the most pessimistic on Wall Street, following a turbulent period for the market. In summary, the financial outlook remains uncertain as concerns linger about the future stability of the US and global economies.