Wall Street's most accurate analyst: The U.S. government is falling into recession and will drag the U.S. into recession

Out-of-control deficit scale, employment market warning... Wall Street's most accurate analyst warns that the U.S. government recession will drag down the entire U.S. economy.

Recently, Michael Hartnett, the chief strategist at Bank of America, known as the "most accurate analyst on Wall Street," warned in a report that the U.S. government is falling into recession and may drag the entire U.S. economy into recession.

Hartnett stated that the current fiscal situation of the U.S. government continues to deteriorate. In 2024, U.S. fiscal spending will reach $7 trillion, with revenues of $5 trillion, resulting in a deficit of $2 trillion, accounting for 7% of U.S. GDP. One major reason for the 50% growth in nominal GDP over the past five years is that discretionary spending by the U.S. government has increased by 65%.

The employment market is also sending out warnings. The report shows that unemployment benefit applications in Washington, D.C. have surged by 200% year-to-date, marking the most severe deterioration since 2008.

The two pillars of the U.S. economy—real estate and consumption—are both experiencing a simultaneous slowdown. Hartnett noted that the current housing market is weak, mortgage applications remain low, and real estate stocks are performing at a 16-month low relative to the broader market, having declined by 30% since last October, which is "never a good sign for U.S. consumers."

The tailwinds of wealth effect and employment growth are weakening, and inflation is eroding consumer confidence. The strong performance of defensive stocks also indicates market concerns about economic slowdown.

Hartnett pointed out that the cash holdings of fund managers have dropped to 3.5%, the lowest level since 2010—this means the market lacks funds for "bottom fishing," and has maintained the "sell signal" from the fund manager survey, which has entered its third month since it was triggered last December.

In the U.S. stock market, the leadership of the "Mag7" (the seven tech giants) is being challenged by DeepSeek, with the gains of the S&P and Nasdaq narrowing this year, lagging behind ACWI (the global stock index).

In this context, Hartnett predicts that the global investment landscape may undergo a shift—the leading position of U.S. stocks relative to other regions is weakening, and investors may pay more attention to markets such as China, Germany, Japan, and South Korea, especially as global PMI begins to rebound.

Additionally, Hartnett presents an interesting point that the so-called "Riyadh Agreement" may become an important factor influencing the market.

According to Hartnett, the "Riyadh Agreement" may involve two core deals: Saudi Arabia leading OPEC+ to increase production by 5-6 million barrels per day in exchange for the U.S. lifting sanctions on Russia and providing military protection; oil revenues being re-anchored to U.S. Treasury allocations.

The report states that this would simultaneously address Trump's inflation reduction demands (Brent crude could fall below $70) and the dollar hegemony crisis (currently 20% of oil transactions are outside the dollar system).

Hartnett also believes that the achievement of this agreement could reshape the global capital landscape—European stock markets may see a resurgence reminiscent of the 1950s (up 191%) and 1980s (up 164%); the trend of international capital rotating from the "Seven Sisters" to European value stocks and Chinese consumer stocks will accelerate.

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