David Roche, a seasoned investor, has warned of an impending bear market in 2025, citing reasons such as a sluggish U.S. economy, an artificial intelligence bubble, and insufficient rate cuts.
What Happened: Roche, a strategist at Quantum Strategy, anticipates a bear market in 2025 due to a combination of factors, reported CNBC on Monday.
"I think [a bear market] is probably coming, but probably in 2025. We now know what will cause it," Roche said.
He foresees the Federal Reserve’s reluctance to reduce rates to the market’s desired 3.50%, a slowing economy, and an AI bubble that has “entered bubble terrain decisively.”
Roche believes these factors will lead to a bear market, possibly starting at the end of this year. He also mentioned that the prediction does not account for the outcome of the U.S. Presidential election in November.
Despite the recent market sell-off, Roche expects the Fed to proceed with interest rate cuts, which will gradually impact profit margins throughout 2025. He also noted that the Fed, consumers, and politicians have a low pain threshold, leaving the Fed with room to address the bear market if it occurs.
Why It Matters: The prediction by Roche aligns with recent sentiments expressed by other financial experts. On Sunday, Brad Case, chief economist at Middleburg Communities, indicated that the Federal Reserve might not cut interest rates until November, citing strong consumer spending and income growth.
Furthermore, Brian Moynihan, CEO of Bank of America, has voiced concerns over the Fed’s rate policy and its impact on consumer confidence. Moynihan warned that a lack of rate cuts could diminish consumer sentiment, which is crucial for economic stability.
Adding to the complexity, the AI sector has been a topic of debate. In July, Wall Street veteran Ed Yardeni warned that AI shows signs of an inflating bubble. Conversely, Jeffrey Roach, chief economist at LPL Financial, dismissed bubble fears, emphasizing the productivity gains from AI.
The prediction by Roche comes amid a series of economic warnings and market fluctuations. Recently, Jim Cramer highlighted the artificial factors driving stock prices, pointing out that the recent uptick isn’t based on strong fundamentals but rather the actions of the Japanese central bank.
Moreover, top economists and money managers have been weighing in on the possibility of a recession. While some, like Ryan Detrick of Carson Group, suggest a soft landing is still possible, others warn of more severe outcomes. The market has already experienced significant volatility, with a notable single-day plunge earlier this month.
After a volatile week that initially seemed bearish, the SPDR S&P 500 ETF Trust SPY rose 0.4% on Friday to close at 5,344 points, securing its second consecutive day of gains and completely erasing the week’s earlier losses. Similarly, the Nasdaq 100, tracked by the Invesco QQQ Trust QQQ, gained 0.6% on Friday, closing at 18,513 points, which allowed it to end the week up 0.4% and break a four-week losing streak, according to data from Benzinga Pro.
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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