A recession in early 2025 could send the stock market tumbling 30%, strategist says

• A recession by early next year could send stocks down 30%, says BCA strategist Roukaya Ibrahim.
• Continued unemployment and headwinds from China’s limping economy will be drivers of a downturn.

Wall Street veteran Gary Shilling holds a similar forecast, he told BI this week.

There are two factors signaling a recession by year-end or early 2025, and a downturn could spark a 30% correction in stocks, according to BCA strategist Roukaya Ibrahim.

The strategist said on Monday that the US stock market is highly valued, and growth the PE estimates will sink back to levels more in line with the five years before the pandemic.

“I think that raises the likelihood that they’re more vulnerable to the downside. And our expectation if we do get this recession, late 2024, early 2025, the S&P 500 is most likely going to fall to around 3600,” Ibrahim told Bloomberg TV on Monday.

According to Ibrahim, Friday’s so-so jobs report for April, which showed employers added 175,000 jobs and boosted confidence in the soft landing narrative, actually contained worrying signs of a weakening economy. A closer examination of the report shows lower job openings, hires, and quit rates, signaling a shift in the narrative toward a recession.

“I think that there’s still a runway for the soft landing narrative to continue over the coming months,” she said. “But eventually, the unemployment rate is going to take higher and that’s going to lead to concerns about a recession.”

Another major headwind will blow in from China, where the government is unlikely to inject a large stimulus into the struggling economy, she said.

“[Chinese policymakers] haven’t really signaled that there’s going to be enough stimulus to really revive the Chinese economy. And so any sort of recovery that we see in the near term in terms of the global manufacturing cycle, that’s going to be short-lived,” she said.

Meanwhile, Ibrahim noted that China’s impact on the US economy pales in comparison to its effect on Europe, but hurdles in European countries are going to prevent any durable recovery in global manufacturing.

“The euro area will not be able to escape a recession if the US falls into it, so this is a global phenomenon that we’re expecting,” she said.

Ibrahim isn’t alone in calling a recession and a steep plunge in the stock market.

Wall Street veteran Gary Shilling, known for predicting the mid-2000s mortgage bubble, is also forecasting a 30% stock market crash by the end of this year, with a recession likely to crush speculative bets that have piled up in recent years.