There are 3 reasons why stocks are headed for a bear market in the first half of 2025, says the research firm.

• According to Doug Peta of BCA Research, stocks will see a sharp correction in the first half of 2025.

• He points to the risks of slowing consumer sentiment, labor market softness, and high valuations.

• He recommends exiting the stock into defensive plays, and buying the dip after a 30% or greater drop.

The shares are due early next year, according to BCA Research.

Firm strategists say US stocks will rally in January before falling more than 20% sometime in the first half of the year, meaning investors should find protection and hedge risk.

Analysts, led by US chief investment strategist Doug Peta, point to a number of data points that show the economy is faltering as the headwinds of pandemic-era policies dissipate.

First, they point to a decline in consumer sentiment after an increase in “retaliatory spending” following the COVID-19 pandemic.

Now, data shows that this trend may be slowing down, even though households are much better off than before the pandemic. Compared to the end of 2019, American consumers saw an increase in home equity and household wealth during the stellar rally of the stock market, analysts said.

Consumer-facing companies have raised warning signs of lower spending, with earnings at Home Depot and Lowe’s falling even amid rising housing prices, which previously indicated more spending on home improvements. Earnings calls from other major retailers such as Walmart and Target, meanwhile, showed an increase in the hunt for more as shoppers tighten their budgets.

“It appears that retaliatory spending has ended, and a number of retailers are reporting that buying momentum has ended,” analysts said in a note on Monday.

Second, BCA analysts point to a softening of the labor market, with October employment data showing the job opening rate rose from a four-year low from September back above its key threshold of 4.5%, while the quit rate rose and the employment rate dropped to a rebound. A four-year low hit in June.

That “one-step-forward-two-steps-back” trend preserves the possibility of a soft stay, but remains a sign of softening that could lead to a recession, analysts say.

“We expect that the continuation of the softening will eventually create a wave of layoffs, creating a vicious circle where the reduction of workers spend less money, and lead to a reduction in wages and a slower growth of costs until businesses reduce investment in view of the recession,” said analysts.

Finally, they highlight the increased risk from high stock prices. The S&P 500 trades at 23 times annual earnings, about two standard deviations above its average, while analysts project earnings per share growth of 13% through 2025, about twice the postwar average of 6.6%.

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