BCA Research cuts U.S. recession odds but warns risks remain high

Investing.com -- BCA Research said the U.S. economy “remains on a knife-edge” as it reduced its 12-month recession probability from 60% to “a still-high 50%.”

The firm said it is “agnostic about the near-term direction for equities” but warned it would “turn significantly more bearish” if U.S. layoffs increase or “the shares of a major AI company were to sell off following the announcement of yet another multibillion-dollar capex project.”

In its Fourth Quarter 2025 Strategy Outlook, BCA Research said a “deceleration in demand (50% odds in our view) could trigger a recession, while a reacceleration could trigger a second wave of inflation (20% odds).”

It assigned only “30% odds to a soft landing,” citing the challenge of keeping growth near potential for an extended period.

The firm’s MacroQuant model is “neutral-to-slightly positive on stocks over a short-term 1-to-3 month horizon,” but it remains modestly underweight on equities over 12 months.

BCA Research said investors should “favour defensives over cyclicals” and “look for an opportunity to pivot towards value over growth and non-U.S. over the U.S.”

On bonds, BCA said “a slight long-duration bias over a 12-month horizon is appropriate,” though “structural forces remain bond-bearish” in the long run.

It added that “the current level of corporate spreads is pricing in a significant decline in the default rate,” which it called “unlikely even in a soft-landing scenario and next-to-impossible in a recessionary one.”

BCA Research expects the U.S. dollar to stay “rangebound” before resuming its weakening trend, and said “gold is in the middle innings of a secular bull market.”

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