The Bank of America recently issued a warning that investors should prepare for a potential stock market correction, particularly in the context of an economic recession. The bank's strategists believe that if unemployment rises and economic growth slows, the S&P 500 index could fall to around 5,000 points, which would be a 12% drop from current levels. Nonetheless, the bank stated that after dropping to 5,000 points, the S&P 500 index might rebound and rise to approximately 5,500 points by the end of the year.
So far, the S&P 500 index has fallen by about 3% this year. The market reacted strongly after the Trump administration announced new car tariffs, leading to a significant drop in tech stocks. The Nasdaq index dropped more than 2% in a single day, and the S&P 500 index also fell more than 1%.
The Bank of America also pointed out that the labor market is gradually weakening, especially as the inversion of the US Treasury yield curve intensifies, which is typically seen as a sign of recession. Despite this, the bank still expects the stock market to rise this year, forecasting that the S&P 500 index will trade between 5,885 and 6,175 points, representing a 7% increase from current levels.
Recently, concerns about an economic recession have deepened further among investors. The latest survey shows that most chief financial officers expect the economy to fall into recession in the second half of this year, with others predicting it will occur in 2026. The survey also indicates that many CFOs believe the Trump administration's policies have added uncertainty to business management.
Additionally, a market report released by Rosenberg Research indicates that the probability of a recession has risen to 33%, an increase from the level observed in November last year. Meanwhile, the latest GDPNow data from the Atlanta Federal Reserve predicts that the US GDP will shrink by 1.8% this quarter.
Given the downward revision of GDP expectations, experts recommend that investors reduce overall investment risk, increase the allocation of defensive stocks, and hold more fixed-income assets to navigate potential economic volatility.
