Latest news with #PeterBerezin
Business Insider
6 days ago
- Business
- Business Insider
5 reasons the AI boom might not be a buffer against a recession
The AI boom might not be enough to stave of an economic downturn. That's according to Peter Berezin, the chief global strategist at BCA Research who thinks that the US still has a 60% chance of entering recession in the next 12 months. A contraction, if it comes, likely won't be prevented by the craze for artificial intelligence, Berezin wrote in a note to clients on Monday, referring to chatter that AI can enhance productivity and spur enough growth in the economy to offset President Donald Trump's tariffs. Investors saw a clear warning in the latest jobs data, Berezin suggested, with the US adding far fewer payrolls than expected in July. Job gains for May and June were also revised downward by a collective 258,000, which Berezin called the "coup de grâce" of the latest jobs report. Stocks are still hovering near all-time highs, likely due to the belief that the weakness in the labor market stems from "temporary" pressures from Trump's tariffs, as well as enthusiasm for AI, Berezin speculated. "Although we doubt that this is the full story, our guess is that stocks will anchor themselves on this benign explanation until proven otherwise," Berezin wrote, later adding that investors couldn't count on AI to "save" the economy. "The AI boom is more of a stock market story than an economic story, at least so far," he continued. Here are the reasons Berezin is skeptical AI will buffer the economy from a recession: 1. AI spending benefits will take time to trickle down. Big tech firms have been spending big on AI. But the boom in capital expenditures is largely concentrated in Nvidia's AI chips and other tech equipment, which aren't manufactured in the US. "Although it is possible that some of this spending will be restored back to the US, it will take a while for that to happen," Berezin wrote. 2. Tech job market in decline. Tech employment is showing signs that growth in the sector is past its peak. Employment in the IT Services sector was lower in July than it was at the end of 2024, according to BCA's analysis. Private job gains in computer and electronic manufacturing is also hovering near a record-low. 3. Higher energy prices The boom in data centers means the US will need a lot of energy that it currently doesn't have. That's raising electricity prices for consumers, a factor that's likely to weigh on consumer spending, Berezin said. Wholesale electricity prices are up 22% from levels last year, according to data from PJM Interconnection. Consumer spending — which accounts for around two-thirds of GDP — rose more than expected in June, but dropped 0.9% in May. 4. Productivity gains aren't here yet There aren't many signs at the moment that AI is significantly boosting productivity. Productivity growth in the "Post-ChatGPT" era, which spans the fourth-quarter of 2022 to now, has averaged around 2.1%, below the average during the peak of the dot-com bubble. Productivity growth is also about the same as it was over the past decade, BCA's analysis shows. "Thus far, however, the data does not point to a structural acceleration in productivity," Berezin said. It could take a long time to see productivity gains from AI effervesce. Productivity growth accelerated in the late 90s, but around 15 years after the personal computer was created, Berezin noted. 5. Other recession indicators are flashing warnings Other indicators of potential downturn are showing signs that the economy could be past its business cycle peak. Berezin pointed to the National Bureau of Economic Research's "Big Six" recession indicators, which could signal the economy is already starting to meaningfully contract. Civilian employment, for instance, is down 0.5% since April, according to BCA's analysis of Federal Reserve data. Real sales in manufacturing and trade and Real income minus current transfer receipts, two measures of consumer spending power in the US, have also slightly declined over the last several months, according to data the firm analyzed from the Bureau of Economic Analysis. "We had planned to reduce our US recession odds if last week's data parade came in on the strong side. It did not, so we are keeping our 12-month recession probability of 60% as is," Berezin wrote, adding that he believed recession risks were "front-loaded" into 2025. The risk of a downturn has become front-of-mind after the latest jobs data, though most forecasters on Wall Street still expect the economy to nail a soft-landing in 2025. Goldman Sachs, Bank of America, and JPMorgan are among those who have trimmed their recession odds in recent months, largely due to Trump dialing back some of the tariffs he announced on Liberation Day.
Yahoo
02-07-2025
- Business
- Yahoo
The S&P 500 is approaching a Wile E. Coyote moment, says Wall Street's biggest bear
Not everyone is impressed with S&P 500 highs lately, as Wall Street's most bearish strategist warns that the stock market is headed for losses that investors aren't counting on. 'A familiar scene in the Road Runner cartoon involves the hapless coyote running off a cliff, pausing in mid-air, and then nervously looking down before plunging to the ground (miraculously, he always survives!),' a BCA Research team, led by chief strategist Peter Berezin, wrote in a note to clients that published on Monday. My wife and I have $7,000 a month in pensions and Social Security, plus $140,000 cash. Can we afford to retire? 'Finance makes me break out in hives': I inherited $240K from my parents. Do I pay off my $258K mortgage and give up my job? 'I do all the yard work, cooking and cleaning': I live with my daughter and her lazy boyfriend. She wants me to buy her house. Do I say yes? 'I'm single': At 70, I have $500,000 in stocks and $220,000 in savings. How do I invest my $130,000 windfall? The last holdout bears are Democrats, these strategists say. Their capitulation could fuel the next leg higher for stocks. 'Our MacroQuant model is flagging the risk of such a Wile E. Coyote moment for the S&P 500,' they wrote. As Berezin and his team explained, BCA's Stock Coach model indicates the U.S. equity z-score — how far performance deviates from the average — is currently just above the 'dreaded' -1 threshold at -0.72. They said that number is 'consistent with below-average returns on the S&P 500 over the next 1-to-3 months. A move below -1 would intensify our angst about the direction of the stock market.' BCA's current recommendation is an underweight on U.S. stocks — in other words, less exposure. Headed into 2025, Berezin had forecast a 4,450 year-end finish for the S&P 500, and in early April said he wouldn't be a buyer unless the index dipped below 4,200. Berezin currently holds the most bearish target for the index across Wall Street strategists. The S&P 500 has logged two fresh record highs in the last two sessions, along with the Nasdaq Composite Index COMP, but stocks were mostly weaker in early action on Tuesday. Berezin and his team said their equity model has shifted from worries about frothy sentiment and positioning on stocks to concerns over the U.S. economic outlook. He and his team cited weakness in consumer spending, the housing market and payrolls data that looks fine on release day, only to be revised lower in the following months. 'To become more confident on the stock market, I would need to become more confident on the economy. Right now, the data does not give me much comfort,' Berezin told MarketWatch in emailed comments, flagging the above data worries. 'This week's jobs numbers will be pivotal. If we get much weaker labor market data for June, the whole recession narrative will come screeching back, causing stocks to tank and bonds to rally,' he said of Thursday's payrolls data, which moved up a day due to the Independence Day holiday. Economists are forecasting a media jobs gain of 110,000 for June, from 139,000 the prior month. As well as the economic backdrop, tariffs that likely aren't going away and supersize budget deficits to come from President Donald Trump's tax and spending bill grinding its way through the Senate are other negatives BCA sees for investors. As for sectors, BCA's MacroQuant equity model prefers materials, consumer staples, energy, utilities, industrials, communications services and healthcare. The model is underweight on financials and information technology, with a more negative bias toward consumer discretionary. Canada, emerging markets, Australia, the euro area and the U.K. are considered overweight equity regions, with Japan neutral. Read: Why out-of-favor Apple holds the key to tech stocks in the coming weeks I'm a stay-at-home mom. Do I take a part-time job to spend more time with my kids — or get a job for six figures? This income fund pays more than a bank account while keeping price volatility low A sputtering jobs market is now a top risk for stocks and bonds in the second half of 2025 My wife and I are in our late 60s. Do I sell stocks to pay our $30,000 credit-card debt — or do it gradually over 3 years? The stock market is hitting records — three reasons why top Morgan Stanley strategist sees more room to run
Yahoo
27-06-2025
- Business
- Yahoo
'It's more likely they'll lose money': One strategist on why he's bearish on the AI trade
The AI hype is strong in markets, but BCA Research's Peter Berezin has his doubts. AI's high costs and competition hinder monetization despite potential productivity gains. AI could mirror the progression of other industries that produce economically useful but low-margin businesses. Nearly three years after the launch of ChatGPT, the AI hype is still in full force as the biggest tech companies continue to shell out billions to build out their AI infrastructure. Nvidia, meanwhile, hit a fresh all-time high this week, and some analysts see the gains piling up to push the premier AI chipmaker to a $6 trillion valuation. But will investors see the billions in AI capex pay off? Peter Berezin, chief global strategist at BCA Research, thinks not. "It's more likely they'll lose money," Berezin told Business Insider, referring to Big Tech companies spending big on the technology. It's been hard to bet against the biggest trade in the stock market and its promise to turbocharge economic productivity. Investors quickly shook off the DeepSeek disruption earlier this year, and Big Tech companies plan to spend over $300 billion on AI investment. The rally in tech powered the Nasdaq 100 to record highs this week. Still, Berezin thinks the market is missing the bigger picture. AI technology is tremendously expensive, and he sees monetization opportunities as slim. While AI certainly could boost productivity, that's no guarantee that higher profits will follow. Venture capitalist Peter Thiel famously said "competition is for losers," and Berezin agrees with this sentiment. "You don't make money in a competitive market. You make money as an investor in a monopolistic market. AI, so far, is very, very competitive, and that's a problem for investors in that area," Berezin said. "If everybody can do it, then how do you charge money for it? OpenAI was bragging a few months ago about how they're actually losing more money than expected on their latest model, but to them that was a good thing because people were using it so much. The presumption here, of course, is that if they're using it, they're eventually going to pay for it," Berezin added. "But why would they pay for it if Anthropic, if X, if DeepSeek, and many other companies now are offering similar products like this?" It's not just the AI startups that are engaged in an AI arms race. Berezin points to the Magnificent Seven's capex spend as another example of fierce competition threatening profits. He sees Big Tech's billion-dollar checks as a defensive investment to maintain market share, not an offensive strategy to expand it. At best, Berezin thinks these companies are investing in AI to maintain their current competitive standing, but there's a real possibility that some could lose their market dominance. Undeniably, many Nvidia investors have already made a lot of money, but that's more of a testament to the chipmaker's near-monopoly on GPUs and less so a reflection of sustainable, broad-based AI monetization. Unless there's more consolidation in other parts of the AI ecosystem, Berezin isn't optimistic that the AI trade will pay off. Another key part of the AI bull thesis hinges on the possibility that AI could unlock massive efficiencies across every sector of the economy. While Berezin doesn't deny this potential, this outcome might not be a boon for shareholders, either. Big-box retailers adopted IT technologies in the 1990s that led to productivity gains, but since these technologies were widely adopted, the competitive advantage was neutralized, resulting in lower prices for the consumer without a corresponding increase in profit margins, according to Berezin. "You can increase productivity from using AI, but if everybody else is also increasing productivity from using AI and competing in the same market, then what you end up with is lower prices, but not higher margins," Berezin said. In his opinion, the AI industry is likely on track to become something that looks like the airline industry: capital intensive, critical for the economy, but very low margin. "I think that's the risk with AI, that the benefits of AI filter down more to the users of AI rather than the producers, which historically has been the case for most technological innovations," Berezin said. Read the original article on Business Insider Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Business Insider
27-06-2025
- Business
- Business Insider
'It's more likely they'll lose money': One strategist on why he's bearish on the AI trade
Nearly three years after the launch of ChatGPT, the AI hype is still in full force as the biggest tech companies continue to shell out billions to build out their AI infrastructure. Nvidia, meanwhile, hit a fresh all-time high this week, and some analysts see the gains piling up to push the premier AI chipmaker to a $6 trillion valuation. But will investors see the billions in AI capex pay off? Peter Berezin, chief global strategist at BCA Research, thinks not. "It's more likely they'll lose money," Berezin told Business Insider, referring to Big Tech companies spending big on the technology. It's been hard to bet against the biggest trade in the stock market and its promise to turbocharge economic productivity. Investors quickly shook off the DeepSeek disruption earlier this year, and Big Tech companies plan to spend over $300 billion on AI investment. The rally in tech powered the Nasdaq 100 to record highs this week. Still, Berezin thinks the market is missing the bigger picture. AI technology is tremendously expensive, and he sees monetization opportunities as slim. While AI certainly could boost productivity, that's no guarantee that higher profits will follow. A race to the bottom Venture capitalist Peter Thiel famously said "competition is for losers," and Berezin agrees with this sentiment. "You don't make money in a competitive market. You make money as an investor in a monopolistic market. AI, so far, is very, very competitive, and that's a problem for investors in that area," Berezin said. "If everybody can do it, then how do you charge money for it? OpenAI was bragging a few months ago about how they're actually losing more money than expected on their latest model, but to them that was a good thing because people were using it so much. The presumption here, of course, is that if they're using it, they're eventually going to pay for it," Berezin added. "But why would they pay for it if Anthropic, if X, if DeepSeek, and many other companies now are offering similar products like this?" It's not just the AI startups that are engaged in an AI arms race. Berezin points to the Magnificent Seven's capex spend as another example of fierce competition threatening profits. He sees Big Tech's billion-dollar checks as a defensive investment to maintain market share, not an offensive strategy to expand it. At best, Berezin thinks these companies are investing in AI to maintain their current competitive standing, but there's a real possibility that some could lose their market dominance. Undeniably, many Nvidia investors have already made a lot of money, but that's more of a testament to the chipmaker's near-monopoly on GPUs and less so a reflection of sustainable, broad-based AI monetization. Unless there's more consolidation in other parts of the AI ecosystem, Berezin isn't optimistic that the AI trade will pay off. What about the productivity gains? Another key part of the AI bull thesis hinges on the possibility that AI could unlock massive efficiencies across every sector of the economy. While Berezin doesn't deny this potential, this outcome might not be a boon for shareholders, either. Big-box retailers adopted IT technologies in the 1990s that led to productivity gains, but since these technologies were widely adopted, the competitive advantage was neutralized, resulting in lower prices for the consumer without a corresponding increase in profit margins, according to Berezin. "You can increase productivity from using AI, but if everybody else is also increasing productivity from using AI and competing in the same market, then what you end up with is lower prices, but not higher margins," Berezin said. In his opinion, the AI industry is likely on track to become something that looks like the airline industry: capital intensive, critical for the economy, but very low margin. "I think that's the risk with AI, that the benefits of AI filter down more to the users of AI rather than the producers, which historically has been the case for most technological innovations," Berezin said.
Yahoo
21-06-2025
- Business
- Yahoo
Why a top market strategist says his base case is still a 25% stock drop and a recession in 2025
Peter Berezin of BCA Research maintains a bearish outlook despite a tariff pause. Berezin predicts a 60% chance of recession, with the S&P 500 dropping to 4,500. Economic concerns include trade uncertainty, rising delinquencies, and a weakening labor market. At a time when strategists across Wall Street are dialing back their recession probabilities, Peter Berezin of BCA Research is doubling down. President Donald Trump's 90-day tariff pause was enough to ease the worries of some investors, but the chief global strategist at BCA has maintained his bearish outlook. While Berezin has lowered his recession outlook from Liberation Day levels, he still expects an economic slowdown to unfold this year. "I've brought down my recession probability from 75% to 60%, so it's not an overwhelming likelihood of recession, but it is still my base case. And in that base case, I would expect the S&P to trade down to around 4,500," Berezin told Business Insider. That would mark a 25% decline for the benchmark index from levels on Friday. While 4,500 sounds like a steep drop from the near-record highs the stock market is trading out now, Berezin doesn't think it'll take much to trigger the fall. A plunge to that level would require the S&P 500 to trade at 18 times earnings with EPS of $250. The index is currently trading at around 23 times earnings with EPS of around $260 — not too far off, in Berezin's opinion. "At this point, it's hard to make a case to be very optimistic on either the stock market or economy," Berezin said. The economy was already showing signs of weakness prior to the trade war fallout, Berezin said. Back in December of 2024, Berezin was calling for a recession in 2025 coupled with a stock market plunge of over 20%. His S&P 500 target of 4,452 was one of the lowest on Wall Street. Today, Berezin is concerned about continued trade uncertainty, a growing deficit, and a weakening consumer. Job openings have been on a downward trend since early 2022, "removing a lot of insulation that had protected the labor market," Berezin said. Indeed, other economists agree that the labor market might be weaker than it seems — Sam Tombs of Pantheon Macroeconomics is concerned with slowing hiring and declining small business sentiment. Berezin also points out that consumer delinquency rates on credit cards and auto loans have been rising. In the first quarter of 2025, credit card delinquencies hit 3.05%. That's the highest level since 2011, "a year in which the unemployment rate was 8%," Berezin said. Furthermore, as student loan collections restart after a five-year hiatus amid the pandemic, consumers' credit scores are taking an even bigger hit. The housing market has also been a pressure point in the economy since COVID, with home affordability and inventory challenges mounting for buyers. Berezin pointed to falling construction in May—housing starts dropped 9.8% in the month— as another sign of a slowdown. The effective tariff rate is hovering around 15%, which is still a level that Berezin considers dangerous. "There's probably no ideal for a tariff rate, but there are numbers that are more punitive for the economy than others," he said. If Trump doesn't solidify trade deals soon, the economy could be in store for some major pain as businesses start to pass along price increases to consumers. A tariff rate lower than 10% would be less disruptive to the economy, but Berezin isn't hopeful that Trump will lower his policies to that level. "Since tariffs on China probably will be higher than tariffs in other countries, that means Trump would have to roll back his 10% base tariff that he's applied to almost all countries," Berezin said. "I don't see him doing that unless the market forces him to do it." In fact, Berezin thinks Trump might even increase tariffs on some industries such as pharmaceuticals, semiconductors, and lumber. Berezin doesn't see an easy way around an impending recession. Some strategists might be hoping for Trump's Big Beautiful Bill to boost the economy through tax cuts, but unfunded tax cuts could push bond yields higher and cancel out any any stimulus. According to the Congressional Budget Office, while the tax bill would increase GDP growth by 0.5% on average over the next 10 years, it would also push up 10-year Treasury yields by 14 basis points and increase the deficit by $2.8 trillion. A stock market crash and economic downturn could actually be the turning point for Trump to reverse course on his policies, Berezin said. The S&P 500 dipping below 5,000 and the 10-year Treasury yield spiking above 4.5% probably influenced Trump to paus tariffs for 90 days, Berezin added. "We could get more tariff relief, but the market has to force that. I don't think it's going to come from any other source," he said. Read the original article on Business Insider
