"Financial crisis prophet" warns: Bear market is likely to come!

Senior investor and Quantum Strategy strategist David Roche, who correctly predicted the financial crises of 1997 and 2008, warned that a bear market may occur in 2025. The reasons include a smaller-than-expected interest rate cut, slowing US economic growth, and an artificial intelligence bubble. However, he expects the Federal Reserve to intervene before the situation becomes "extremely serious."

In an interview on Monday, Roche said, "I think a bear market is likely to come, but it may be in 2025. We now know the potential reasons that will trigger it."

Roche predicts that the Federal Reserve will not cut interest rates to the market's expected 3.50%, as the Fed's median forecast for 2025 is 4.1%. According to the CME Group's FedWatch Tool, almost all market participants currently believe that the Fed's policy rate will be below 4.1% by September 2025.

Roche warned, "The second reason is that corporate profits will not reach expected levels because US economic growth will slow down."

"The third reason is that the artificial intelligence industry has clearly entered a bubble territory and will fade away in the next six months, acting as a driver of economic slowdown."

He said, "I believe these three factors are enough to cause a 20% decline in US stocks in 2025, possibly starting from the end of this year." He also added that this prediction does not take into account the results of the November US presidential election.

Concerns about a US economic recession were raised after the July non-farm payrolls report fell below expectations, leading to a significant sell-off in the stock market. Additionally, the unwinding of arbitrage trades following Japan's interest rate hike has cast doubt on the Fed's decision to keep rates unchanged at its recent meeting. However, US stocks quickly rebounded, with the S&P 500 index closing last week down by less than 0.1%.

Roche now expects the Fed to cut rates by 25 basis points, but this will also lead to a gradual decline in profit margins, a situation that will occur in 2025. He said, "If you want the Fed to lower rates, the economy must slow down, the labor market needs to loosen, and profit margins will come under pressure."

If these factors trigger a bear market, the Fed will have enough room to respond, as Roche believes that Fed officials, consumers, and politicians have a low tolerance for pain. Whether such measures can effectively reverse the bear market remains unknown, but it can prevent the bear market from evolving into a situation that "disrupts the global economy."