Darius Dale, the founder and CEO of 42 Macro, an investment research firm, has warned that several catalysts are pointing to a possible market crash in 2025.
According to Dale, this bearish outlook is guided by dynamics around liquidity and refinancing, which are likely to play a crucial role in the anticipated economic downturn, he said in an interview with David Lin, published on January 16.
Dale argued that the global financial system is entering a precarious phase due to a mismatch between the rising demand for refinancing and insufficient growth, or even a decline, in liquidity.
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This imbalance, he explained, could force investors to sell assets in massive numbers to raise returns, putting downward pressure on markets.
“The conditions are in place for the markets to crash in 2025. If we are right on inflation, if we are right on this global refinancing cycle potentially morphing into a global refinancing air pocket whereby we don’t see a big enough acceleration or even deceleration in the growth rate of liquidity, which essentially is a global investor balance sheet,” the expert said.
Overly bullish market
At the same time, the risk is amplified by an overly bullish market where many participants are unprepared for a downturn.
Notably, since the election of Donald Trump, there has been bullish sentiment across the market, as his presidency is viewed positively for the economy.
After a slowdown in late December and early 2025, the bullish outlook has resumed ahead of Trump’s January 20 inauguration.
Dale also pointed to structural risks, such as a potentially hawkish Federal Reserve, accelerating unit labor costs driving inflation, and shifts in net financing policies, which could worsen the situation.
These factors, combined with a lack of sufficient liquidity, according to Dale, may lead to significant market stress.
While the crash may take the form of a 20% drop in the stock market, Dale expressed optimism about the long-term outlook.
He emphasized that factors like the ongoing artificial intelligence (AI) supercycle and anticipated Trump policies, such as tax cuts and deregulation, will serve as potential drivers of recovery.
To sum up his outlook, Dale noted that investors may need to rebalance portfolios and adjust expectations, correcting the current overconfidence in the market.
“I think investors will buy that dip, but again, they can’t buy it now because they’re all on the bullish side of the boat,” he added.
Increasing bearish sentiments
It’s worth noting that concerns have been raised in recent months regarding the overall health of the U.S. markets, with bearish sentiments increasing.
Some experts have differed on the timing of the crash, with author and investor Robert Kiyosaki claiming that the downturn is already in progress.
Meanwhile, economist Henrik Zeberg has maintained that stocks and cryptocurrencies are likely to hit new highs before experiencing a significant correction.
As reported by Finbold, Kurt S. Altrichter warned that the iShares 20+ Year Treasury Bond ETF (TLT) ‘s recent over-50% drop from its peak signals an imminent recession, as the metric reflects the devastating effect of the Federal Reserve’s aggressive interest rate hikes.
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