'Dr. Doom' Nouriel Roubini sees a 25% fall in the S&P 500 if the US economy sinks into a severe recession

• The S&P 500 could fall by 25% if the US enters severe recession, according to economist Nouriel Roubini.
• "Dr. Doom" told Bloomberg such a move could happen if the US contracts sharply but not by as much as during 2008.
• Roubini's estimate would see the S&P 500 around its lowest levels of the current bear market.

US stocks could tumble to their worst levels of the current bear market should the US economy slump into its sharpest recession in more than a decade, according to economist Nouriel Roubini.

Dubbed "Dr. Doom" for his often pessimistic outlook, the New York University economics professor told Bloomberg in a broadcast interview Wednesday that the world's largest economy is unlikely to avoid a recession as the Federal Reserve raises interest rates during a time of scorching inflation levels alongside a low unemployment rate.

Roubini said the S&P 500 typically falls by 30% from peak to trough in times of short and shallow recessions. The broad-equity index sank by 50% during the 2008 Global Financial Crisis, he noted.

"So even if we had a mild recession, right now, the market is down, depending on the day, 15% from the peak, you'll have another 15% leg down," he said. "If we have something more severe than a short and shallow recession, but not as severe as GFC …. you have another 25% downside potentially in the markets."

US gross domestic product fell by 4.3% from its peak in the fourth quarter of 2007 to its trough in the second quarter of 2009, the deepest recession since World War II, according to the Federal Reserve.

The S&P 500 was down about 17% on a year-to-date basis as of Wednesday's session. The index had lost as much as 27% when it hit an intraday low of 3,491.58 in October from its all-time intraday high of 4,818.62 in early January. Stocks this year were hit as the Fed embarked on an aggressive rate-hike campaign to lower inflation and the step-up in borrowing costs from a zero-percent baseline has stoked recession concerns.

Warnings from major banks and CEOs about recession and stock-market losses for 2023 were growing louder as 2022 winds down and the Federal Reserve approaches its last rate hike of the year. JPMorgan CEO Jamie Dimon this week said with inflation "eroding everything" and consumer savings drawing lower, the economy looks poised to run into a mild to hard recession.

A recession warning is also coming from the bond market, with the yield curve inversion between the 2-year and 10-year Treasury notes at its steepest since the 1980s, according to Bloomberg.

"Sometimes, of course, there are false alarms," said Roubini. "But I think that the most important thing is that in the last 60 years, there's never been a case in US history that you have inflation above 5 percent - right now 7.7 - unemployment below 5 percent – now 3.7 – that when the Fed starts to raise interest rates, you get a soft landing. You get in every case a hard landing," he said.

Roubini also expects to see stress in credit markets if the US were to enter a recession, with pressure on "lots of institutions like corporates, households, businesses that are highly leveraged."