The stock market will drop 32% in 2025 as the Fed fails to save the economy from a recession

The stock market will drop 32% in 2025 as the Fed fails to save the economy from a recession.

The stock market is projected to crash by 32% in 2025 as the Federal Reserve struggles to prevent a recession, according to the most bearish strategist on Wall Street.

Peter Berezin, chief global strategist at BCA Research, stated in a recent note that a recession is expected to hit the US economy either later this year or in early 2025, causing the S&P 500 to plummet to 3,750.

"The consensus soft-landing narrative is wrong. The US will fall into a recession in late 2024 or early 2025. Growth in the rest of the world will also slow sharply," Berezin said.

Berezin's bearish outlook is partly based on his belief that the Fed will "drag its feet" in cutting interest rates, only significantly loosening financial conditions once a recession is evident.

By then, it will be too late.

Berezin pointed out that the labor market is weakening as job openings decline significantly from their post-pandemic peak. The ongoing decline in the quits rate, hiring rate, and recent downward revisions to the April and May jobs report also indicate a slowing labor market.

"Two years ago, workers who lost their jobs could simply walk across the street to find new work. That has become increasingly difficult," Berezin said.

The June jobs report showed the unemployment rate ticking higher to 4.1% from 4.0%, another sign of mild weakness in the jobs market.

Rising unemployment could ultimately lead to consumers reducing their spending to build up their "precautionary savings," Berezin said, coinciding with consumers' decreasing ability to borrow money due to rising delinquency rates.

Ultimately, a negative feedback loop will develop in the broader economy, which will send the stock market tumbling.

"With little accumulated savings to draw on and credit availability becoming more constrained, many households will have little choice but to curb spending. Decreased spending will lead to less hiring. Rising unemployment will curb income growth, leading to less spending and even higher unemployment," Berezin explained.

Most importantly, Berezin believes the Fed's plan to mitigate any economic decline through interest rate cuts will be ineffective.

"It is important to recognize that what matters for the economy is not the fed funds rate per se, but the interest rate that households and businesses actually pay," Berezin said.