Stock market strategist warns of worst stock market crash since 2008
This analyst expects a 36% crash for the S&P 500 in 2027. He explains why and when he wants to get out.
Joachim Klement of Panmure Liberum comes up with one of the most pessimistic predictions for Wall Street. The strategist expects the S&P 500 to be around 5,000 points by the end of 2027.
From the current level of about 7,800 points, this means a decrease of almost 36 percent. According to Klement, reversing the huge wave of investment around AI can even lead to the toughest stock market correction since the financial crisis.
His concerns mainly revolve around the combination of huge investments and rising financing costs. Bloomberg Intelligence expects hyperscalers to invest about $713 billion in data centers this year. That is more than twice as much as last year.
According to Klement, these companies have now used a large part of their free cash flows for these investments. As a result, they are becoming more and more dependent on debt.
And that is precisely where the problem arises as US bond yields rise to the highest levels in more than twenty years. Klement expects this investment cycle to reach its limits sometime in 2027 or 2028.
This development could have major consequences for the entire stock market. The S&P 500 rose about 18.3 percent over the past six months. A Goldman Sachs index excluding companies that directly benefit from AI rose only 6.7 percent.
A relatively small group of companies therefore contributes a large part of the rally. This makes disappointing investments or profit figures at the large technology companies extra important.
Klement is not withdrawing from the market for the time being. His main red flag is the 200-day average of the S&P 500. As long as the index trades above that, it remains invested.
Only when the S&P 500 drops convincingly below that level does it want to position itself fully defensively and move towards food and pharmaceutical companies, among other things. Klement also acknowledges that his warning may be early.
Strong corporate earnings and economic figures still support equities for the time being. His scenario therefore only becomes really dangerous when the technical trend breaks and it becomes clear that the huge investments in AI can no longer be sustained at ever higher financing costs.