The S&P 500 Could Drop to 4,200, According to Wall Street's Biggest Bear. Here’s His Advice for Right Now

As 2025 approaches, most Wall Street strategists are predicting further gains for the S&P 500, following the index’s 23% surge last year—a rally many of them missed. However, Peter Berezin, chief global strategist at BCA Research, stands out as a lone bear with a far more cautious outlook. While most forecasts place the S&P 500 at around 6,500 by year-end, with Oppenheimer projecting as high as 7,100, Berezin’s target sits significantly lower at 4,450.

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In a recent interview with MarketWatch, the Montreal-based strategist warned that an impending recession could make equities a challenging investment. Berezin outlined a worst-case scenario where the S&P 500 could fall to 4,200. This forecast assumes two critical developments: the index’s forward earnings multiple dropping from the current 21 to 17, and corporate earnings estimates declining by 10%.

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“Given that earnings are expected to grow by over 10% in the next year, this scenario would leave earnings essentially flat,” Berezin explained. He believes that a recession is the most likely driver of such an outcome. “Earnings and the economy are closely linked, so it’s difficult to imagine one weakening without the other,” he added.

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According to Berezin, there is a 50% chance that the U.S. is already in a recession, although official confirmation may take time. He speculated that “March could very well be the starting point of this recession.” Following the 2024 U.S. presidential election, BCA Research increased its recession probability—a move few other firms made. Berezin attributed this adjustment to concerns about former President Donald Trump’s trade policies, which he believes could disrupt the economy in both positive and negative ways.

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Unlike many on Wall Street who viewed Trump’s tariffs as a mere negotiating tactic, Berezin remains convinced that Trump supports tariffs due to his protectionist stance and the need to address the growing budget deficit. “I didn’t expect things to escalate this quickly,” he admitted, pointing to the rapid implementation of 25% tariffs on Canada and Mexico by early March. “The situation has deteriorated even faster than anticipated,” he remarked.

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Berezin’s bearish stance on stocks began in mid-2024, a position he acknowledges was premature. However, he rejects the “permabear” label, noting that he correctly predicted no U.S. recession risk in 2022 and remained optimistic throughout 2023. Despite his earlier missteps, Berezin remains firm in his cautious outlook and advises investors to reduce their exposure to equities.

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“I think it’s best to largely step away from stocks right now,” Berezin advised. For those who must stay invested, he recommends shifting toward defensive sectors like consumer staples, healthcare, and utilities. He also suggests avoiding underperforming areas such as technology, consumer discretionary, industrials, materials, and financials—even though financials have shown relative strength this year. Berezin also cautioned against high-yield credit and cryptocurrencies.

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Instead, Berezin advocates for safer assets. “You want to own more bonds, more cash, and more gold,” he said. For investors able to engage in currency trading, he suggests defensive currencies such as the Japanese yen and Swiss franc. “While these positions may not generate significant returns, they could help you avoid major losses,” he added.

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Investors with a long-term, 10-year horizon may face challenges, Berezin acknowledged. While they could focus on undervalued areas like international and value stocks, these segments typically struggle during recessions. For those reluctant to part with their favorite equities, he recommends hedging through put options, which allow investors to sell stocks at a predetermined price, offering protection against potential declines.

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When asked what could shift his negative outlook, Berezin pointed to a complete reversal of Trump’s tariff policies. However, he noted that even such a pivot might not be enough unless stock prices fall significantly.

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Meanwhile, U.S. stock futures are rising following a sharp post-election decline in the S&P 500. Futures tied to the S&P 500, Dow Jones Industrial Average, and Nasdaq 100 are all climbing. Treasury yields are also moving higher, with the 10-year yield at 4.226% and the 2-year yield at 3.939%. The U.S. dollar is weakening against the euro, while German bund yields are surging as the country plans an aggressive spending program.

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In summary, while most of Wall Street remains optimistic about continued market gains, Berezin’s contrarian view underscores the risks posed by a potential recession and the disruptive effects of ongoing trade policies. For cautious investors, he recommends defensive positioning and hedging strategies to weather possible volatility ahead.

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