David Roche, a seasoned investor and strategist at Quantum Strategy, predicts a bear market could emerge in 2025 due to a combination of economic factors and an overinflated AI sector. In an interview on CNBC’s Squawk Box Asia on Monday, Roche outlined his concerns about smaller-than-expected rate cuts, a decelerating U.S. economy, and the bursting of the AI bubble.
Roche expects the Federal Reserve (Fed) to be less aggressive in cutting interest rates than anticipated. While the market hopes for a reduction to 3.50%, Roche forecasts a rate around 4.1% for 2025, higher than market expectations. He believes that economic slowdowns will prevent profits from meeting expectations.
The AI sector, which Roche argues is in “bubble terrain,” is also a significant worry. He predicts that this bubble could burst within the next six months, contributing further to economic deceleration. Roche estimates that these factors could trigger a bear market with a 20% decline starting potentially at the end of this year.
Recent market movements, including a disappointing jobs report and a sell-off exacerbated by unwinding carry trades following Japan’s interest rate hike, have already heightened recession fears. Although the S&P 500 ended the week with minimal change, Roche anticipates a 25-basis-point rate cut by the Fed, which could strain profit margins throughout 2025.
Despite these challenges, Roche believes the Fed has sufficient leeway to adjust rates if economic conditions worsen. He is confident that the Fed will act to mitigate severe economic downturns, although the effectiveness of these measures in preventing a global economic collapse remains uncertain.
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