Veteran investor David Roach warns bear market could come by 2025

Veteran investor David Roche predicts a bear market in 2025 due to smaller-than-expected rate cuts, a slowing U.S. economy and an artificial intelligence bubble.

“I think (the bear market) is probably coming, but probably in 2025. We now know what causes it,” the quant strategist told CNBC’s “Squawk Box Asia” on Monday.

Roach expects the Fed to resist cutting rates to the 3.50% the market is looking for. Median forecast 4.1% in 2025 and Almost all market participants Rates are currently expected to be below 4.1% by September 2025, according to the CME’s FedWatch tool.

“The second thing is that profits are not going to meet expectations because the economy is going to slow,” Roach warned.

The third factor Roche expects to contribute to the bear market is the field of artificial intelligence.

Roach said China has “clearly entered bubble territory” and will emerge from it in the next six months or so and will be one of the drivers of slower economic growth.

“I think those three factors are enough to cause a 20% bear market by 2025, perhaps starting at the end of this year,” he said, adding that the forecast did not take into account who wins the U.S. presidential election in November.

Last week, a weaker-than-expected jobs report led markets to question the Federal Reserve’s decision to keep interest rates unchanged. Recession concernsThis led to a sharp sell-off in the market, which was also exacerbated by the unwinding of carry trades following Japan’s rate hike.

However, the market quickly recovered, with the S&P 500 closing down less than 0.1% last week.

Now, Roche expects the Fed to continue to cut interest rates by 25 basis points, which will also lead to a decline in profit margins, and this decline will occur gradually through 2025.

“If you want the Fed to lower interest rates, then the economy has to slow down, interest rates have to slow down, the labor market has to slow down, and profit margins are going to come under pressure,” he said.

If those factors trigger a bear market, Roach said the Fed would have room to respond given the low pain threshold among Fed officials, consumers and politicians.

“If things turn out worse than expected, the Fed will likely have plenty of room to cut rates, and the Fed has said that many times,” he said.

He added that it was uncertain whether this would decisively reverse the bear market, but it would prevent it from becoming a situation that “destroys and destroys the world economy.”