David Roche Predicts Bear Market in 2025 Due to Economic Factors & AI Bubble

David Roche, a seasoned investor and a strategist at Quantum Strategy, warns that a bear market could hit in 2025, driven by a combination of factors: smaller-than-expected rate cuts, a slowing U.S. economy and an inflated AI sector. 'I think [a bear market] is probably coming, but probably in 2025. We now know what will cause it,' Roche said during an interview on CNBC's 'Squawk Box Asia' on Monday.

Roche anticipates that the Federal Reserve (Fed) will be reluctant to cut interest rates to the market's desired 3.50 per cent. Instead, the Fed's forecast for 2025 is around 4.1 per cent, which is higher than what most market participants expect. Roche believes that "profits won't fulfil expectations because the economy is going to be slowing."

He also points to the AI sector as a significant concern. Roche claims it has 'entered bubble terrain decisively' and will likely burst within the next six months, contributing to slower economic growth. 'I think there is enough in those three factors to cause a bear market of minus 20 per cent in 2025, maybe starting at the end of this year,' he added.

Recent market events, including a disappointing jobs report and a market sell-off exacerbated by unwinding carry trades after Japan's interest rate hike, raised recession fears. Although the S&P 500 ended the week down less than 0.1 per cent, Roche expects the Fed to implement a 25-basis-point rate cut, which could pressure profit margins throughout 2025.

Roche believes the Fed has enough room to react if conditions worsen, given the low tolerance for economic pain among Fed officials, consumers, and politicians. 'The likelihood is that the Fed has plenty of room to cut rates if things turn out worse than expected,' he said. While it's unclear if these measures can completely stave off a severe downturn, Roche is confident that the Fed will act to prevent a global economic collapse.