Peter Berezin, the new "biggest bear" of US stocks and global chief strategist of BCA Research, stated in a report last Thursday that he has lowered the target for the S&P 500 index to 3750 points because he expects the US to enter a sudden and unexpected recession soon.

This target point is lower than the end-of-year target of 4200 points predicted by Morgan Stanley Global Research Department, which was previously the lowest forecast on Wall Street. Berezin expects this recession to begin later this year or in early 2025.

If this is indeed the case, according to his predictions, the S&P 500 index may fall more than 30% from its closing level last Friday.

For the market, the situation may worsen. Berezin expects the growth in Europe to slow down, and Asia may also be affected. Therefore, global growth may generally weaken and put pressure on US stocks.

Berezin believes that the US labor market is slowing down rapidly, which is putting immense pressure on consumer spending.

He listed a series of indicators that show that the frenzy of recruitment during the epidemic has become a thing of the past. Official job vacancy data shows that the number of unfilled positions has decreased significantly, and the resignation rate has also dropped. A private sector job vacancy survey also reflected a greater reduction in employment demand.

At the same time, labor department data shows that the rate of wage growth has slowed down. Recently released economic data also shows signs of a slowdown in consumer spending, including the May Personal Consumption Expenditures Price Index released last Friday.

But Berezin believes this may just be the beginning, as a sudden weakness in the labor market may trigger a vicious cycle.

Bank deposit data has shown that low-income Americans seem to have exhausted their savings during the epidemic. As credit card and car loan default rates continue to rise, banks may choose to raise lending standards and increase the pressure faced by consumers.

With consumer indicators slowing down, Berezin expects companies to reduce capital expenditures. In fact, data collected by BCA to track enterprise expenditure plans shows that many companies are already preparing to cut capital expenditures.

Once Berezin's envisioned recession arrives, the Federal Reserve may not immediately intervene in its progress. Out of fear of reigniting inflation, Powell and his colleagues may not act until it is too late.

Fiscal policy may also be of no help. According to the official estimate of the US Congressional Budget Office, the budget deficit is expected to rise to 7% of GDP in 2024.

Therefore, regardless of who wins in November, the bond market may oppose any unfunded spending increases. Earlier last week, BCA recommended that clients reduce their holdings of US stocks while increasing their allocations to bonds and cash.

Berezin proposed some suggestions, including shorting Bitcoin and betting on a lower US dollar against the Japanese yen. Berezin predicts that if his recession scenario comes true, the yield on 10-year US Treasury bonds may drop to 3%, and the federal funds target rate may be lowered to 2%.