Peter Berezin of BCA Research cautioned that a sustained 10% decline in U.S. stock prices would have a pronounced effect on household balance sheets and consumer demand. Using a rule of thumb that every $1 change in equity wealth produces a $0.04 shift in consumption, Berezin calculated that roughly $70 trillion in U.S. equity wealth means a 10% market fall would wipe out about $7 trillion and potentially reduce aggregate demand by around $280 billion, or approximately 0.9% of GDP.
Wealth effect and consumption
The estimate centers on the conventional wealth-effect linkage between portfolio values and household spending. If equity markets fall and remain depressed, the implied hit to consumption could be sizable because the reduction in perceived household wealth would, by that rule of thumb, translate into lower spending across the economy.
Recent growth dynamics
Berezin noted that fourth-quarter U.S. GDP growth slowed to 1.4%, a figure below consensus expectations. He attributed much of that shortfall to a government spending drag associated with a shutdown. When government outlays, inventories and trade are stripped out of the headline figure, real private final domestic demand - a measure that aims to capture underlying private-sector activity - rose a solid 2.4%, suggesting that core domestic demand has continued to show resilience despite the weaker headline number.
Inflation, tariffs and their trajectory
On prices, the core personal consumption expenditures deflator increased 3.0% year-over-year in December. Berezin estimated that tariffs have contributed about 50 basis points to inflation to date. He also observed that the inflationary impact of tariffs is likely to diminish over time as earlier price increases fall out of annual comparisons. The administration's proposal to implement a 10% tariff under Section 122 of the Trade Act of 1974, Berezin said, is unlikely to reverse the broader pattern of falling effective tariff rates.
Recession odds and policy offsets
Balancing some of the downside, BCA lowered its 12-month U.S. recession probability to 30% from 50%. The firm cited potential offsetting impulses such as tariff refunds and rising tax rebates, which it said could put hundreds of billions of dollars back into the economy. These policy-related inflows are part of the rationale for a reduced near-term recession probability despite persistent risks.
AI investment and market vulnerability
Berezin flagged rapid and large-scale capital spending on artificial intelligence infrastructure as a key vulnerability. He drew a parallel to a prior period of heavy telecom investment that preceded the 2001 downturn, suggesting the current surge in AI-related spending could have similarly adverse implications if it proves excessive. BCA projects hyperscalers could accumulate roughly $2 trillion in AI-related assets by 2030, a stock of capital that would generate significant depreciation charges.
Those depreciation charges, Berezin warned, could approach current profit levels for those firms. At the same time, free cash flow is forecast to decline sharply through 2026, a dynamic that raises concern among investors about potential overinvestment. If hyperscalers curb future spending, hardware suppliers and other vendors exposed to AI infrastructure demand could face meaningful revenue and profit pressure.
Market stance and outlook
For the next three months, BCA takes a neutral stance on equities and expects more rotation within markets than an outright recessionary move. However, the firm warned that over a one-year horizon the balance of risk for stocks is tilted to the downside, particularly if falling share prices begin to materially restrain consumption via the wealth effect described above.
In sum, BCA's analysis ties potential market weakness to a tangible hit to household spending, while highlighting policy offsets and the uncertain effects of large-scale AI capital expenditure on corporate cash flows and supplier sectors. The interplay of these factors will be important to monitor for implications across consumer behavior, technology investment cycles and equity valuations.