A Projected 36% Plunge for the S&P 500
A 36% decline for the S&P 500 by the end of 2027. That is the warning issued by Joachim Klement, head of market strategy at Panmure Liberum, who predicts the artificial intelligence market bubble will burst between 2027 and 2028. Such a collapse could trigger the most severe stock market crash since the 2008 global financial crisis. My core conviction is that the AI bubble will either burst in 2027 or in 2028, so sometime in the next two years,
Klement said in an interview.
Klement’s base case for the S&P 500 sits at 5,000 points by the end of 2027, according to Bloomberg. Europe’s Stoxx 600 index faces a similar fate, with a projected 30% drop to 430 points. These figures represent a sharp reversal for the strategist, who in mid-September had estimated the S&P 500 would reach 8,300 points by the end of next year.
The End of the Infrastructure Bonanza
The pivot in Klement’s outlook centers on corporate debt and the depletion of cash. This shift reflects Klement’s concerns that stubborn inflation and the surge in borrowing costs could derail the bonanza in AI-related infrastructure.
The scale of this spending is immense. Bloomberg Intelligence data suggests capital spending by these firms could reach $713 billion in 2026, more than double the previous year’s levels. It is a situation where people are just focusing on one thing and one thing only, and that is earnings and in particular tech earnings,
Klement said.
Conflict Among Market Strategists
Klement’s bearish stance stands in stark contrast to the broader market consensus. Bloomberg reports that seven other strategists track an average potential upside of 14% for the S&P 500 by the end of 2027. Citigroup Inc. strategists recently noted that they expect solid 2027 earnings to continue supporting global equity gains, despite persistent headwinds from geopolitical risks and elevated interest rates.
Not all analysts are dismissive of the risks, however. Temasek International’s chief investment officer, Rohit Sipahimalani, identified the potential reversal of the AI trade as a primary risk factor for global markets this week.
Defensive Maneuvers for a Bear Market
Klement advises against immediate selling. Instead, he suggests investors prepare contingency plans for a potential bear market. I’m starting to worry people today for something that I think might happen in six to nine months,
he said. What I tell people is now is the time to prepare.
Now is the time to make contingency plans for when the market goes into a bear market.
His strategy calls for a transition to “full defensive” positions—specifically targeting food, tobacco, and pharmaceutical stocks—once the S&P 500 drops below its 200-day moving average. This technical indicator, which calculates the average closing price of an index over the past 200 days, is used by investors to identify long-term trend shifts.
Despite his grim outlook for 2027, Klement remains the most bullish analyst tracked by Bloomberg for the Stoxx 600 through the end of 2026, forecasting a 10% gain before the anticipated downturn. It is unclear whether the market will succumb to the pressures of debt and cash flow exhaustion or whether the current earnings optimism will hold.
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