Investing.com -- BCA Research has taken a notably bearish view on the U.S. equities, predicting that the S&P 500 will fall to 4450 by the end of 2025, significantly below consensus expectations.
"This is, by far, the lowest in the Bloomberg survey," BCA strategists led by Peter Berezin noted. The call assumes a drop in forward earnings estimates and a decline in the price-to-earnings (P/E) multiple to 18, which would still be above the pre-pandemic average.
The pessimistic outlook comes against a backdrop of expected economic slowdown. BCA expects a global recession, driven by weaker consumer spending and persistent inflationary pressures.
Inflation driven by tariffs will restrict central banks’ ability to act, extending the duration of the downturn, the firm said.
In such a scenario, cyclical sectors are likely to underperform, while defensive sectors like utilities and healthcare may provide relative stability.
On the commodities front, BCA projects a sharp pullback in oil prices. "In a recessionary scenario, we would expect the price of Brent oil to temporarily fall to $50 per barrel," strategists said.
Factors including a shift to a green economy and surging U.S. crude production are expected to weigh on prices. Moreover, OPEC’s ability to control prices may diminish as U.S. production continues to expand.
Gold, on the other hand, is seen as a preferred asset. The price of the yellow metal has surged 85% since October 2022, and BCA argues that concerns about government solvency and ongoing geopolitical risks will keep demand strong.
“While some might argue that this is a sign that gold is overvalued, we would contend that the real price of precious metals should trend higher over time, in line with the overall trend in global wealth. This suggests that gold prices still have upside,” strategists continued.
Meanwhile, BCA expects the U.S. dollar to strengthen in the short term before facing longer-term headwinds.
While trade tensions and elevated interest rates may provide temporary support, the greenback remains expensive.
Relative to its Purchasing Power Parity (PPP) exchange rate, BCA estimates the dollar is 22% overvalued. However, BCA’s team acknowledges that achieving a sustained weakening of the dollar will be difficult without a major shift in interest rate differentials.
“In today’s environment, it is unlikely that any of the major central banks would refrain from cutting rates simply to please Trump,” the note states.
BCA said the Japanese yen is its favorite currency for the remainder of the year, highlighting it as a solid recession hedge.