- Recession risk has jumped to 75% due to the potential for a trade ware under Trump, BCA Research said.
- Trump's proposed tariffs could lower household income and depress corporate investments.
- The firm advises pulling back from stocks as interest rates remain in restrictive territory.
Peter Berezin, the chief global strategist for BCA Research, said the chances of a US recession have jumped since President-elect Donald Trump's win last week.
In a Friday note, Berezin increased the probability of an economic recession to 75% from 65%, citing the risk of a new trade war under Trump.
"The prospect of a new trade war more than offsets the other pro-business parts of Trump's agenda. With the labor market already weakening going into the election, the odds of a recession have risen," Berezin said.
On the campaign trail, Trump proposed implementing universal tariffs of 10%-20% on goods imported into the country and a 60% tariff on goods from China.
Berezin said those tariffs would likely depress corporate investment and lower real household disposable income for consumers, representing a double economic whammy.
Berezin cited a study from the Budget Lab at Yale that estimates Trump's proposed tariffs could reduce real disposable income for the median US household by $1,900-$7,600.
Some have argued that Trump's tariff proposals are empty threats meant to to get leverage when negotiating with other countries, but Berezin isn't so sure.
"Whether Trump carries out these threats is open for debate. The consensus view among market participants is that, for the most part, he will not. Once again, I suspect the consensus is too optimistic," Berezin said.
And while Trump's proposed tax cuts, if passed, could boost the S&P 500's earnings per share by 4%, that's less than the 5% gain the index has seen in the past week, Berezin highlighted, suggesting that those potential tax cuts are already priced into the market.
Berezin is also worried about the surge in interest rates since Trump's election win, arguing that they're at "restrictive levels" that would put downward pressure on economic growth.
"The weak state of the housing market is screaming at investors that monetary policy is restrictive," Berezin said, highlighting the marked slowdown in housing sales activity.
All of these factors lead Berezin to take a bearish view on the stock market going forward.
"Taken together, these considerations lead us to recommend a modest underweight on stocks," Berezin said, adding that he plans to move to a "max underweight" recommendation "once clearer evidence of a recession emerges."