Strategist names asset to buy now amid Middle East crisis

• Stocks face dual downside risk as both valuation multiples and earnings (especially in tech sector) could decline from current high levels of 20x forward earnings
• Recession probability estimated at 40% in the United States and around 50% in Europe and Japan due to ongoing Middle East conflict and macroeconomic concerns
• Avoiding recession depends on resolution of oil shock and continued strong AI-related capital expenditure, with potential support from easing oil prices, fiscal stimulus, and central bank rate cuts

Market Summary: Cash Position Recommended Amid Middle East Crisis

Peter Berezin, Chief Global Strategist at BCA Research, recommends holding cash as the optimal asset allocation amid ongoing Middle East conflicts involving the U.S., Israel, and Iran that began in late February.

Key Investment Recommendations:

Berezin advises against aggressive equity exposure despite recent stock market retreats. He notes that equities remain expensive at approximately 20x forward earnings, with profit margins near peak levels. This creates dual downside risk where both valuation multiples and earnings could decline simultaneously, particularly in the technology sector. His strategy emphasizes maintaining liquidity to capitalize on potential future market selloffs.

Recession Probability Assessment:

The strategist estimates recession risks at:

• United States: 40%
• Europe and Japan: 50%

While elevated, Berezin notes these levels don't guarantee an economic downturn.

Mitigating Factors:

Several elements could support the global economy:

• Stabilizing oil prices if conflict eases
• Incoming U.S. fiscal stimulus
• Potential tariff reductions
• Central bank rate cuts if inflation moderates
• Stimulus measures from Germany and China

Critical Dependencies:

Avoiding recession hinges on two primary factors:

1. Resolution of oil price shocks
2. Sustained investment in artificial intelligence infrastructure

Berezin warns that any slowdown in AI-related capital expenditure would significantly elevate recession risks, regardless of energy market conditions.

Market Implications:

The recommendation signals a defensive positioning strategy for investors, prioritizing capital preservation over growth opportunities during heightened geopolitical and economic uncertainty. The elevated recession probabilities and rich equity valuations suggest limited upside potential with asymmetric downside risks in current market conditions.