Veteran investor David Roche said that a slowdown in the US economy, a smaller-than-expected easing of the Fed's monetary policy, as well as an artificial intelligence bubble could cause the US stock market to collapse by about 20% next year.
He added that the US Central Bank is likely to resist reducing rates to the market's desired 3.50%. "In addition, I expect corporate earnings to miss expectations amid a slowdown in the economy. The artificial intelligence sector will also be an important factor that will lead to a bear market," Roche said, adding that the Fed is likely to reduce the rate gradually, by 0.25%, however, this will also cause lower profit margins, which will happen progressively over 2025.
"If you want the Fed to cut interest rates, then the economy has to slow down interest, labor markets have to slacken off, and margins will come under pressure. If these factors provoke a bear market, the Fed will have an opportunity to solve this problem. The central bank may continue to cut rates if the situation turns out to be worse than expected, and politicians have repeatedly stated this. It is not a fact that such actions will decisively reverse the bear market, but it will stop it from becoming something that would “undermine and destroy the world economy," Roche said.