Warning from Wall Street: The US economy is highly likely to decline this year, and US stocks may plummet by 25%!

As the 90-day "tariff moratorium" set by US President Trump draws nearer, investor sentiment has intensified in recent days. By July 9, if countries fail to reach a trade agreement with the US, the "reciprocal tariffs" that previously spooked the globe will once again take effect.

Peter Berezin, an analyst at market research firm BCA Research, is particularly pessimistic on this issue. He expects that the US economy will likely experience a recession this year, and US stocks will also fall sharply.

"I've reduced the probability of a recession from 75% to 60%. Although the likelihood of a recession has dropped significantly, it remains my base case scenario.Under this base case scenario, I expect the S&P 500 to fall to around 4,500 points," he said in a recent interview. This implies a 25% decline in the S&P 500 from its closing price last Friday.

While 4,500 points may sound like a significant drop from the stock market's near-record highs, Berezin believes that not much needs to happen to trigger such a decline.

"It's currently difficult to be very optimistic about the stock market or the economy," he said.

Economic Slowdown

Berezin pointed out that the US economy had already shown signs of weakness well before the impact of the trade war became apparent. Now, he is concerned about persistent trade uncertainty, rising deficits, and increasingly weak consumers.

He further explained that job openings have been on a downward trend since the beginning of 2022, eliminating many of the "buffers" that protected the labour market.

Other economists also believe that the job market may be weaker than it appears. For example, Samuel Tombs, chief US economist at Pantheon Macroeconomics, warned that the May non-farm payrolls data may not tell the whole story. He believes that the US labour market is grappling with weak hiring and an accelerating trend of downward revisions.

He cited the March non-farm payrolls data as an example, noting that the initial figure of 224,000 new jobs added that month was nearly halved to 120,000 in subsequent revisions. Therefore, the May data may also be overstated. He stated, "We expect that in the third estimate, to be released in early August, the May employment figure will be revised down to around 100,000."

Berezin also pointed out that consumer delinquency rates for credit cards and auto loans have been rising. In Q1 2025, the credit card delinquency rate reached 3.05%, the highest level since 2011, when "the unemployment rate was 8%."

Additionally, the real estate market has been a pressure point in the economy since the COVID-19 pandemic, with homebuyers facing increasing challenges in housing affordability and inventory. Berezin pointed out that the decline in housing starts in May (a 9.8% drop in housing starts for the month) was another sign of economic slowdown.

Tariffs remain a threat

Berezin stated thatcurrent effective tariff rates hover around 15%, which is still a dangerous level.He noted that if Trump does not solidify trade agreements soon, the economy could face some significant pain as businesses begin to pass on price increases to consumers.

He further pointed out that tariffs below 10% would be less damaging to the economy, but Berezin does not hold out hope that Trump will reduce tariffs to that level.

"I don't think he will do it unless the market forces him to," he said.

In fact,Berezin even believes that Trump may raise tariffs in some industries, such as pharmaceuticals, semiconductors, and lumber.

Some strategists may hope that Trump's "big and beautiful" bill will boost the economy through tax cuts, but tax cuts without funding could push up bond yields and offset any stimulus. Berezin emphasized that in the upcoming recession, "there is no other way out."