Wall Street's Most Bearish S&P 500 Call Hinges on One Chart Signal
Key Summary
Panmure Liberum's head of market strategy, Joachim Klement, has shifted his expectations for the S&P 500, predicting a 36% drop to 5,000 points by 2027, citing sticky inflation, higher borrowing costs, and the bursting of the AI bubble. This marks a sharp reversal from his earlier target of 8,300 points, and is the most bearish call among strategists tracked by Bloomberg. Klement's warning is shared by other major investors, including Temasek International's CIO and Ray Dalio, who see the AI boom as a classic bubble that could be close to bursting.
Market Shift
Panmure Liberum's head of market strategy, Joachim Klement, has made a significant shift in his expectations for the S&P 500. His new target of 5,000 points by 2027 is a 36% drop from the index's current level, and marks a reversal from his earlier target of 8,300 points. This move is driven by concerns over sticky inflation, higher borrowing costs, and the bursting of the AI bubble. Klement believes that hyperscalers have largely used up their free cash flow, and that the cost of debt is climbing fast enough to become prohibitive for them. He has set a two-year window for the turn, and believes that the AI bubble will either burst in 2027 or in 2028.
Economic Risks
Klement's warning is not isolated, as other major investors have also expressed concerns over the AI trade. Temasek International's CIO has pointed to a reversal of the AI trade as a key risk for global markets, while Ray Dalio has warned that the AI boom resembles a classic bubble that could be close to bursting. In contrast, Barclays has maintained its 2027 S&P 500 target at 8,800, while Citigroup has said that solid 2027 earnings can lift equities despite higher rates.
Global Outlook
Klement's bearish call has implications for the global economy, as he expects the Stoxx 600 to fall to 430 by end-2027, more than 30% below current levels. Despite this, he remains the most bullish tracked strategist on the index through 2026, forecasting gains of about 10%. Klement has also admitted that his bearish call may be premature, and is starting to worry about something that might happen in six to nine months.
Earnings and Economic Data
Third-quarter results and 2027 guidance due early next year will test whether Klement's bearish call holds. Strong earnings and resilient economic data still support stocks, but Klement believes that the AI bubble will eventually burst, and that investors should be prepared for a potential crash.