By Peter Berezin, the chief global strategist for BCA Research, said the chances of a US recession had jumped since President-elect Donald Trump’s win last week.
In a Friday note, Berezin increased the probability of an economic recession to 75% from 65%, citing the risk of a new trade war under Trump.
“The prospect of a new trade war more than offsets the other pro-business parts of Trump’s agenda,” Berezin said. “With the labor market already weakening going into the election, the odds of a recession have risen.”
On the campaign trail, Trump proposed implementing universal tariffs of 10% to 20% on goods imported into the US and a 60% tariff on goods from China.
Berezin said those tariffs would likely depress corporate investment and lower real household disposable income for consumers, which would be an economic double whammy.
He cited a study from the Budget Lab at Yale that estimated Trump’s proposed tariffs would reduce real disposable income for the median US household by $1,900 to $7,600.
Some have speculated that Trump’s tariff proposals are empty threats meant to get leverage when negotiating with other countries, but Berezin isn’t so sure.
“Whether Trump carries out these threats is open for debate,” Berezin said. “The consensus view among market participants is that, for the most part, he will not. Once again, I suspect the consensus is too optimistic.”
And while Trump’s proposed tax cuts, if passed, could boost the S&P 500’s earnings per share by 4%, that’s less than the 5% gain the index saw in the past week, Berezin said. That suggests those proposed tax cuts are already priced into the market.
Berezin also expressed concern about the surge in interest rates since Trump’s election win, saying that they’re at “restrictive levels” that could put downward pressure on economic growth.
“The weak state of the housing market is screaming at investors that monetary policy is restrictive,” Berezin said, highlighting the marked slowdown in housing-sales activity.
All of these factors lead Berezin to take a bearish view on the stock market.
“Taken together, these considerations lead us to recommend a modest underweight on stocks,” Berezin said, adding that he planned to move to a “max underweight” recommendation “once clearer evidence of a recession emerges.”
