Senior investor Roche warns: Three factors may lead to a 20% plunge in US stocks
Senior investor Roche warns that due to a smaller-than-expected rate cut, a slowdown in the US economy, and an artificial intelligence bubble, it is expected that the US stock market will plummet by 20% in 2025. Roche believes that a bear market may arrive in 2025, with three main factors being a smaller-than-expected rate cut, a slowdown in the US economy, and a bubble in the artificial intelligence industry. He predicts that the Federal Reserve will not cut interest rates to the market's expected 3.50%, profits will not meet expectations, and the artificial intelligence industry has entered a bubble territory. This forecast does not take into account who will win the US presidential election in November. Roche expects the Federal Reserve to continue cutting rates by 25 basis points, however, this will also lead to a decrease in profit margins, which will gradually occur in 2025. If these factors trigger a bear market, the Federal Reserve will have room to respond
According to the financial news app Zhitong Finance, senior investor and Quantum Strategy strategist David Roche predicts that a bear market with a 20% decline will occur in 2025 due to a smaller-than-expected interest rate cut, a slowdown in the U.S. economy, and an artificial intelligence bubble.
In an interview on Monday, Roche said, "I think a bear market may be coming, but it may be in 2025. We now know the causes of the bear market."
Roche expects the Federal Reserve not to cut interest rates to the market's expected 3.50%. The median forecast for interest rates in 2025 by the Federal Reserve is 4.1%, while almost all market participants currently believe that rates will be below 4.1% by September 2025.
"Secondly, profits will not meet expectations because the economy will slow down," Roche warned.
Roche predicts that the third factor leading to the bear market will be the artificial intelligence industry.
Roche stated that the artificial intelligence industry has "entered the bubble territory" and will emerge from the bubble in about the next six months, becoming one of the driving factors of economic growth slowdown.
He said, "I believe these three factors are enough to cause a 20% decline in 2025, perhaps starting from the end of this year." He added that this forecast does not take into account who will win the U.S. presidential election in November.
The Federal Reserve kept interest rates unchanged at its recent monetary policy meeting, a decision that was questioned last week due to disappointing job reports triggering concerns of a recession, leading to significant selling in the market, and arbitrage trades closing after Japan raised interest rates further exacerbated the market sell-off.
However, the market quickly rebounded, with the S&P 500 index closing last week with a decline of less than 0.1%.
Currently, Roche expects the Federal Reserve to continue cutting rates by 25 basis points, which will also lead to a decrease in profit margins, a decline that will gradually occur by 2025.
He said, "If you want the Federal Reserve to lower interest rates, then the economy and labor market must slow down, and profit margins will come under pressure."
Roche stated that if these factors trigger a bear market, considering that the pain threshold of Federal Reserve officials, consumers, and politicians is very low, the Federal Reserve will have room to respond.
He said, "If the situation is worse than expected, the Federal Reserve is likely to have enough room to cut rates, as the Federal Reserve has said so many times."
Roche added that it is uncertain whether this will decisively reverse the bear market, but it will prevent the Federal Reserve from becoming a factor that "disrupts and destroys the world economy."