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Investing.com -- The U.S. economy is on track to enter a recession within the next three months, Peter Berezin, Chief Global Strategist at BCA Research said in a note.
The macroeconomic research firm reaffirmed its 75% probability of a U.S. recession beginning in the near term, citing weakening economic conditions and growing downside risks.
"Although the metrics the NBER tracks to determine recession start dates still looked reasonably benign in January, more recent data suggest that the U.S. economy is reaching stall speed," Peter Berezin wrote in a Thursday report.
BCA highlights several factors contributing to the deteriorating outlook. The job openings rate has returned to pre-pandemic levels, excess household savings have been depleted, and mortgage rates above 6% now apply to a significant portion of homeowners.
Rising delinquencies on credit cards, auto loans, and commercial real estate further point to financial stress, while consumer confidence has weakened and layoff announcements have increased.
“Recessions often begin when an economy becomes vulnerable to a downturn and is then hit by a shock. Once that happens, feedback loops typically emerge that reinforce the downward pressure on growth,” Berezin explained. “Today, the US finds itself on the verge of such a cascade of bad economic news,” he added.
In response to these negative developments, BCA advises investors to stay underweight equities and overweight cash.
The economic slowdown is being exacerbated by trade policy uncertainty and fiscal conditions. Berezin warns that conventional estimates may understate the impact of ongoing trade disruptions, arguing that the recent uptick in manufacturing activity outside the U.S. is largely the result of front-loading purchases ahead of expected tariff increases.
The tightening of financial conditions has also become a headwind for growth.
Reaffirming its previous forecast, BCA forecasts that a recession is likely to begin in May. "That still feels right to us," the report states.
In that light, the strategists expect the euro to strengthen and European stocks to outperform their U.S. counterparts over the next months. However, they believe these trends “will reverse by the middle of this year.”