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Wall Street sage issues grim warning about the S&P 500 and the chances of a recession - here is what it means for 401(K)s
A top banking analyst has predicted that US stocks could soon plunge by 30 percent.
BCA Research chief global strategist Peter Berezin told clients last week that the US economy could fall into a recession later this year or early 2025.
If the US does fall into recession as he predicts, Berezin says the S&P 500 will fall to as low as 3,750 - a 30 percent drop on its current levels.
Berezin's concern for the economy is rooted in the belief that the labor market could slow substantially in the coming months.
Lower employment would weigh heavily on consumer spending, a key impetus for economic growth.
BCA Research chief global strategist Peter Berezin warned stocks could tumble
The S&P 500 is up more than 15 percent so far this year with the Dow Jones up around 3.8
A crash would also affect American's retirement accounts.
Most have at least some of their 401(K) and Individual Retirement Account invested in the Dow Jones, the S&P 500 and the Nasdaq.
'The reason the US avoided a recession in 2022 and 2023 was because the economy was operating along the steep side of the Phillips curve,' he wrote in the note.
The Philips curve is an economic theory that states there is an inverse relationship between unemployment and inflation, when the former goes up the latter will fall.
'When the labor supply curve is nearly vertical, weaker labor demand will mainly lead to lower wage growth and falling job openings.
'In other words, an immaculate disinflation' he added.
Berezin also told the firm's clients that further economic pain could be on the way as a result of slowing growth in Europe and China.
Such a scenario would, he argued, weaken overall global growth and cause international stocks to fall.
The gloomy argument comes after the Dow Jones hit a record high in May, topping 40,000 for the first time ever. At 39,331 is currently just below the milestone.
The S&P 500 is up more than 16 percent so far this year and the tech-heavy Nasdaq up a whopping 22 percent so far.
The upward surge has also worried some other analysts.
Among them is Sam Stovall, CFRA Research's chief investment strategist who last month warned that stocks are headed for a 'correction.'
'I am getting increasingly concerned that we have to endure another decline of 5 percent or more before the year is out,' Stovall told Yahoo.
In recent weeks, top bankers and even a leading former CEO have issued chilling warnings about the US economy.
In May, Jamie Dimon - head of the world's biggest bank JPMorgan Chase - said that the worst outcome for the US economy would be 'stagflation'.
This is when inflation continues to go up, but unemployment is high and growth slows.
JPMorgan Chase CEO Jamie Dimon has said that he cannot rule out a 'hard landing' for the US
Economists consider stagflation, last seen in the US in the 1970s, to be worse than a recession. It would send stocks down, hitting 401(K)s and other retirement savings
'I am getting increasingly concerned that we have to endure another decline of 5 percent or more before the year is out,' Stovall said in June.
The upward surge has also worried Sam Stovall, CFRA Research's chief investment strategist who last month warned that stocks are headed for a 'correction.'
'I am getting increasingly concerned that we have to endure another decline of 5 percent or more before the year is out,' Stovall said in June.