The U.S. economy is still likely to fall into a recession and that will soon drag down stocks, according to Credit Suisse. Global equity strategist Andrew Garthwaite said in a note to clients on Tuesday that he has recently become “incrementally more negative” on stocks and expects a recession to hit next year. “The growth/inflation trade-off is unlikely to improve in the U.S. … If hard data macro surprises stay this high, inflation expectations are likely to rise. We think that core service inflation ex shelter (at 1.9% 3 months annualised) is likely to stop falling given recent wage data. Macro surprises appear to have peaked given recent weak PMIs,” Garthwaite said, referring to purchasing managers indexes. Specifically, Garthwaite expects a recession in the first quarter of 2024, meaning that stocks are “now very close to the point at which markets should peak prior to a recession.” He also said that complacency has set in among clients, which could be a sign that stocks are overvalued. “Rate peaks are usually good for markets on average (seeing returns 1-3% above average) unless there is recession or overvaluation. We have both potentially in 2024,” he said. The S & P 500 closed at its highest level of the year on July 31, at 4,588.96. The index has so far shed about 2.4% in August. .SPX YTD mountain The S & P 500 has slipped off its highs of the year in August. Garthwaite’s comments come as others on Wall Street are warming up to the idea of a so-called “soft landing” for the U.S. economy. Some major investment banks, including Goldman Sachs , have recently reduced the odds of a recession, while Oppenheimer hiked its S & P 500 target to 4,900. Still, there are areas of concern that support Credit Suisse’s recession case. On Tuesday, Moody’s cut the credit ratings on 10 U.S. banks and placed several others under review for a potential downgrade. — CNBC’s Michael Bloom contributed reporting.