According to BCA Research, the belief in a soft landing for the US economy is unrealistic, and a recession is expected to hit later this year or in early 2025.
Despite resisting the consensus view in 2022 and predicting a period of disinflation in 2023, BCA Research has now shifted its stance and forecasted a recession within the next six months.
The recent rate cut by the Fed was met with optimism by the stock market, reminiscent of similar reactions in 2001 and 2007, which marked the beginning of significant easing cycles.
Historically, unexpected rate cuts of 50 bps have led to short-term market gains, but ultimately resulted in significant stock market declines. BCA Research believes that the US is heading towards a recession, citing rising unemployment rates and other recession indicators.
As a result, BCA Research recommends investors to underweight stocks and overweight government bonds. They anticipate the S&P 500 to drop to 3800 during the impending recession.
Looking ahead, BCA Research foresees a decrease in GDP growth to 3% in 2025, with the fed funds rate reaching 2%. They expect the US dollar to weaken initially before strengthening during the recession, while favoring the yen as a currency going into 2025.