BCA downgrades equities to underweight as US is heading towards recession

Investing.com -- BCA Research downgraded equities to underweight in a note Monday, warning that the U.S. economy is likely to slide into recession due to policy uncertainty and weakening consumer sentiment.

“It increasingly appears as if [the] near-term disruptions, coupled with tariff uncertainty, will help induce a recession,” BCA wrote. 

The firm pointed to the Department of Government Efficiency’s (DOGE) recent policies, arguing that while their long-term impact remains uncertain, their immediate effects are disruptive. 

“Gut renovations are performed with sledgehammers, not scalpels,” they added.

BCA also highlighted the broader economic fallout beyond federal employment. 

“It is shortsighted to weigh DOGE’s impact simply by looking at the comparatively small number of civilian federal employees (3 million) relative to total nonfarm payrolls (159 million). The knock-on effects are considerably larger,” wrote the firm.

Adding to concerns, BCA noted a decline in consumer sentiment and spending. “Full-year guidance from large national retailers has been uniformly downbeat. Consumers seem to be tightening their belts in line with their droopy survey responses.”

The firm has long expected economic momentum to fade as pandemic-era stimulus effects wear off. 

Now, it believes recent policy uncertainty could accelerate that slowdown. “We think that the uncertainty engendered by DOGE and tariffs will provide the nudge to tip [the U.S. economy] into a recession,” BCA stated.

As a result, BCA is “tactically downgrading equities to underweight and upgrading fixed income and cash to overweight.”