Aggressive tariffs and federal spending cuts spearheaded by the so-called Department of Government Efficiency could tip the U.S. economy into a recession, according to BCA Research, which downgraded equities due to this negative backdrop. "We think that the uncertainty engendered by DOGE and tariffs will provide the nudge to tip it into a recession and are tactically downgrading equities to underweight and upgrading fixed income and cash to overweight," BCA strategists led by chief U.S. investment strategist Doug Peta wrote in a note to clients. Stocks have already been under pressure as tariffs implemented by the Trump administration fuel fears of inflationary pressures and lower consumer spending. In an interview that aired Sunday, President Trump responded to a question on Fox News about the possibility of a recession by saying the economy was going through " a period of transition ." .SPX YTD mountain S & P 500 BCA Research, which has been calling for a recession since mid-2024 , believes the uncertain trade policy could slow capital investments significantly among corporate America. "The prudent course of action is to sit on one's hands until the dust settles; unfortunately for the economy, that response pushes the economy closer to a hysteresis-driven recession even if tariffs are only temporary or not implemented at all," the firm wrote. As for DOGE's cost-cutting moves led by Elon Musk , BCA believes the actions will create a negative shock in the system with layoffs eroding economic growth in the near term. The billionaire tech entrepreneur, with Trump's blessing, has reduced more than 60,000 federal headcounts , spanning 17 agencies, according to an estimate from Challenger. "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)," BCA said. "The knock-on effects are considerably larger." The S & P 500 just suffered its worst week since September with a loss of 3.1%, and the index has turned red on the year, down 3.6%.
