The S&P 500 is expected to fall to 3,750 by 2025, according to a research note from analysts at BCA Research on Friday.
The index closed at 5,344 points on Friday, up 0.47%.
They note that the global stock market has faced a double whammy, starting with growing skepticism about the bullish narrative surrounding artificial intelligence (AI), followed by growing concerns about global economic growth, particularly in Europe and China.
These concerns have now extended to the United States, driven by a sudden increase in the unemployment rate, according to BCA Research.
They believe the weaker growth data has led investors to expect early rate cuts by the central bank. However, they add that this expectation initially destabilized financial markets, particularly by triggering a run on the yen carry trade.
The collapse of the yen carry trade, along with a reversal of other low-volatility strategies popular among hedge funds, such as dispersion trading, contributed to the market volatility, BCA Research said.
While the market may stabilize in the short term, BCA Research expects the medium-term trend to be bearish.
They expect the U.S. to enter a recession in late 2024 or early 2025. While future cuts in federal interest rates could eventually stimulate growth, BCA research warns that these benefits may arrive too late, as has happened in previous cycles when recessions occurred shortly after the Fed began cutting rates.
While stocks should stabilize in the near term, the medium-term trend is downward, BCA wrote. We still expect the U.S. to enter a recession in late 2024 or early 2025.
BCA adds: “We expect the S&P 500 to fall to 3,750 in 2025 and the 10-year yield to fall to 3%.” Analysts have warned that the events of the past few weeks are a preview of what’s to come for investors.
