BCA strategist Roukaya Ibrahim is sounding the alarm, warning that a recession is still on the horizon for the US economy. In an interview with Fox Business Network, Ibrahim forecasted that the downturn could hit before early 2025, bringing with it the potential for a significant stock market plunge.
According to Ibrahim’s analysis, once the economy enters into a contraction, the S&P 500 could plummet by as much as 26%, with the benchmark index dropping to around 3,500. This grim outlook is attributed to the Federal Reserve’s aggressive monetary tightening measures implemented since March 2022, pushing interest rates to their highest levels since 2001. Economists have long cautioned that such tightening could lead to over-tightening of financial conditions, ultimately triggering a recession.
Signs of economic strain are already emerging, with rising auto loan delinquencies and a near-record low savings rate of just 3.7% in December. Ibrahim highlighted these indicators as evidence that consumers are feeling the squeeze of inflation and rising borrowing costs, leading to reduced spending and increased savings.
The potential for a “vicious cycle” in the economy is looming, Ibrahim warned, as tighter financial conditions prompt consumers to save more and spend less. A San Francisco Fed study suggested that Americans may have depleted their excess savings from the pandemic by the third quarter of 2023, while JPMorgan estimates that 99% of Americans will be financially worse off this year compared to pre-pandemic levels.
Ibrahim emphasized the vulnerability of stocks once the recession hits, particularly as investor sentiment remains overwhelmingly bullish. With 44% of investors expressing optimism about the market in the American Association of Individual Investors’ latest survey, there is a risk of a significant downturn in corporate earnings, potentially leading to a 10% decline and supporting Ibrahim’s 3,500 price target for the S&P 500.
While Ibrahim’s warnings echo those of other market commentators, including indicators suggesting an 85% chance of recession according to the “full model” and New York Fed economists pricing in a 61% likelihood of recession before January 2025, the path forward remains uncertain as the economy navigates through challenging times.
