A sustained 10% decline in U.S. equities could significantly weaken consumer spending and raise recession risks, according to BCA Research strategist Peter Berezin, who warned that elevated technology investment and shifting investor sentiment may leave markets vulnerable over the next year.
Get premium news and insight by upgrading to InvestingPro Berezin said U.S. households currently hold roughly $70 trillion in equity wealth, meaning a 10% fall in stock prices would erase about $7 trillion and potentially reduce aggregate demand by around $280 billion, or roughly 0.9% of GDP. The estimate is based on a rule of thumb that every $1 change in equity wealth translates into a 4-cent shift in consumption.
The warning comes as fourth-quarter U.S. GDP growth slowed to 1.4%, below expectations, although Berezin said the miss was largely driven by a drag from government spending tied to a shutdown. Real private final domestic demand, a measure that strips out government spending, inventories and trade, rose a solid 2.4%, suggesting underlying activity remains resilient.
Inflation data remained mixed, with the core PCE deflator rising 3.0% year-over-year in December. Berezin estimated tariffs added about 50 basis points to inflation, though their impact is expected to fade as earlier price increases roll out of annual comparisons. The administration’s plan to introduce a 10% tariff under Section 122 of the Trade Act of 1974 is unlikely to reverse the broader trend of declining effective tariff rates, he said.
BCA lowered its 12-month U.S. recession probability to 30% from 50%, citing potential stimulus from tariff refunds and rising tax rebates that could inject hundreds of billions of dollars into the economy. Still, Berezin warned that heavy capital spending on artificial intelligence infrastructure echoes the telecom investment boom that preceded the 2001 downturn.
Hyperscalers could hold around $2 trillion in AI-related assets by 2030, potentially generating annual depreciation charges close to current profit levels, while free cash flow is projected to drop sharply through 2026. Berezin said investors are increasingly concerned that companies are overinvesting, raising the risk that hyperscalers may scale back spending, a move that could weigh on hardware suppliers and broader growth.
While BCA remains neutral on equities over a three-month horizon and sees more market rotation than recession for now, the firm expects risks to stocks to tilt to the downside over the next year, particularly if weaker share prices begin to curb consumption.
