Is a ‘SURPRISE recession’ on its way? Veteran technical analyst warns Wall Street has become too complacent about the US economy – and predicts more banks could fail like SVB

Wall Street has become too complacent over the risk of a recession, a veteran technical analyst has warned as he predicted the S&P 500 could plunge to lows not seen since the pandemic.

Milton Berg, who has worked in the financial services since 1978, said the collapse of Silicon Valley Bank (SVB) earlier this year was ‘just the tip of the iceberg’ and speculated more firms could fail.

His comments come after Goldman Sachs economists slashed the chances of America entering a recession in the next 12 months from 20 to 15 percent. 

The bank said it had ‘confidence’ the Federal Reserve‘s policy to tame inflation by hiking interest rates from near-zero to a 22-year high.

Berg told the Forward Guidance podcast: ‘Everybody has given up on a recession for some reason. All of a sudden the Fed continues tightening and all of a sudden everyone is saying no recession.

Milton Berg, who has worked in the financial services since 1978, said the collapse of Silicon Valley Bank (SVB) earlier this year was ‘just the tip of the iceberg’ and speculated more firms could fail

‘Goldman Sachs who a year ago were saying there was a 65 percent chance of recession now goes down to a 15 percent chance of recession.’

But he cautioned: ‘It’s just amazing how when you have a strong market all of a sudden people doubt a recession. But now’s a great time to worry.

‘When the economy looks good that’s when you get a surprise recession.’

Berg – who has advised elite investors such as George Soros and Stanley Druckenmiller – later added: ‘The reality is the economy has been weak and might get weaker. It’s more likely now we’ll get a recession than any time in the last two years.’

The banking sector was plunged into crisis when Silicon Valley Bank collapsed on March 10. It was the third largest bank to fail in US history and the largest since the 2007-2008 global financial crisis. 

It was swiftly followed by the collapses of First Republic Bank and Signature Bank.

Much of the panic has since subsided, with investors quickly moving on from the crisis.

However, Berg warned: ‘SVB is just a canary in the coalmine, tip of the iceberg. That’s my opinion. It’s going to happen to many, many more banks, many, many more assets.’

Experts have been sounding the alarm of a US recession ever since red-hot inflation started to take hold following Russia’s invasion of Ukraine. 

Goldman Sachs chief economist Jan Hatzius said in a research note Tuesday that the bank had slashed the chances of America entering a recession in the next 12 months from 20 to 15 percent 

Fed interest rates shot up to a 22-year high of 5.5 percent in July 

However much of the economy has defied expectations. The Fed’s policy of aggressive interest rate hikes has also cooled the rate of annual inflation to 3.2 percent – down from a high of 9 percent last summer.

And experts say the Stock Market has entered a ‘bull market’ after the S&P 500 rallied spectacularly following a fall of around 20 percent in 2022. 

A ‘bull market’ is a nickname used by Wall Street to refer to periods where the S&P 500 rises by 20 percent or more from its most recent low. 

But Berg urged caution over this ‘correction’ as previous economic patterns suggest stocks are likely to fall again.

He said in a ‘real, real bad recession’ the S&P 500 could drop to lows seen in March 2020. 

However he added: ‘I’m not predicting that, I’m just saying we have to have it in the back of our minds what could happen.’

His comments are at odds with those made by Goldman Sachs chief economist Jan Hatzius who praised the approach of Fed Chair Jerome Powell which had helped to stave off a recession.

Hatzius wrote in a research note: ‘Our confidence that the Fed is done raising rates has grown in the past month.

‘We view Chair Powell’s promise at Jackson Hole to ‘proceed carefully’ as a signal that a September hike is off the table and the hurdle for a November hike is significant.’

The Fed is set to meet again on September 20th to decide whether another hike is necessary. The benchmark rate by the Fed provides a guideline to how much banks should lend and borrow money.