• The risk of recession has risen to 75% due to the possibility of a trade war under Trump, BCA Research said.
• Trump’s proposed tariffs could reduce household incomes and depress business investment.
• The firm advises exiting stocks while interest rates remain in restrictive territory.

Peter Berezin, chief global strategist at BCA Research, said the chances of a U.S. recession have increased since President-elect Donald Trump’s victory last week.

In a note Friday, Berezin increased the likelihood of an economic recession from 65% to 75%, citing the risk of a new trade war under Trump.

“The prospect of a new trade war far outweighs the other pro-business parts of Trump’s agenda. With the job market already weakening in the run-up to the election, the risks of a recession have increased,” he said. Berezin said.

During the election campaign, Trump proposed implementing universal tariffs of 10 to 20% on imported goods in the country and a 60% customs duty on goods from China.

Berezin said these tariffs would likely reduce business investment and reduce real disposable household income for consumers, representing an economic double whammy.

Berezin cited a study from Yale’s Budget Lab that estimates that Trump’s proposed tariffs could reduce the real disposable income of the median American household by $1,900 to $7,600.

Some have argued that Trump’s tariff proposals are empty threats intended to gain leverage in negotiations with other countries, but Berezin isn’t so sure.

“Whether Trump will follow through on these threats is open to debate. The consensus among market participants is that, for the most part, he will not. Once again, I suspect the consensus is too optimistic ” Berezin said.

And even though Trump’s proposed tax cuts, if passed, could boost S&P 500 earnings per share of 4%, less than the 5% gain recorded by the index last week, Berezin pointed out, suggesting that these potential tax cuts are already priced into the market.

Berezin is also worried the rise in interest rates since Trump’s election victory, arguing that they are at “restrictive levels” that would put downward pressure on economic growth.

“The weakness in the real estate market makes it clear to investors that monetary policy is restrictive,” Berezin said, pointing to the marked slowdown in housing sales.

All of these factors lead Berezin to take a bearish view of the stock market going forward.

“Taken together, these considerations lead us to recommend a slight underweight in stocks,” Berezin said, adding that he plans to move to a “maximum underweight” recommendation “once clearer evidence of a recession will appear.