A top economist suggests that a robust AI stock rally fueling the stock market bubble could face an early burst if former President Donald Trump wins the 2024 election.
What Happened: John Higgins, the chief markets economist at Capital Economics, expressed concerns about the potential impact of Trump’s proposed policies on tariffs and immigration on the economy, Business Insider reported on Friday.
He said Trump’s presidency “could potentially result in the imposition of universal tariffs and reductions in immigration.”
“Universal tariffs and less immigration would cause growth to be slower and inflation to be higher than otherwise,” Higgins added.
“Despite the threats to growth from such trade and immigration policies, the Fed might be less inclined, if at all, to loosen policy in such circumstances. This is because the policies would jeopardize its victory against inflation.”
Capital Economics believes that the stock market will continue to set records, potentially reaching as high as 7,000 by the end of 2025 before the bubble bursts, similar to the 2000 dot-com bubble.
See Also: What Happened With Trump Media & Technology Group Stock Today?
If Trump secures a second term and Republicans gain control of Congress, the potential for a surge in fiscal spending could further restrict the Fed’s decision to cut interest rates. Higgins also warned that the stock market bubble could still be at risk of a potential slowdown in corporate earnings or unexpected geopolitical events, even if Trump doesn’t win the 2024 election.
Why It Matters: The stock market has been showing signs of a potential bubble for some time now. In June, economist Harry Dent warned of a “crash of a lifetime” that could see the S&P 500 plummet by 86% from its peak. Dent highlighted the artificial stimulus in the current bubble, comparing it to the natural bubble from 1925 to 1929.
In May, veteran tech analyst Gene Munster predicted that the stock market would continue its bull run for another three to five years before an AI bubble bursts, driven by the increasing adoption of AI technologies. Munster believes that this trend will drive the market for the next three to five years.
Last month, Wall Street veteran Richard Bernstein warned that the most expensive stocks in the market are likely overvalued and could be heading for a correction. This, however, could present a “monster” buying opportunity for other areas of the market
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