Well-known Wall Street bears are pessimistic about the 2026 market and anticipate that the Federal Reserve will accelerate interest rate cuts

The market research firm BCA Research, led by well-known Wall Street bear Peter Berezin, has released a new report titled "Return of Nasdog," offering a cautious outlook on the market. Its core viewpoint is that the artificial intelligence boom will come to an end, while U.S. economic activity will significantly slow down.

BCA Research states that the issue of excessive investment in the AI sector should have already manifested, with investments in the U.S. technology and software sectors reaching 4.4% of GDP by 2025, close to the levels seen during the internet bubble. Given that the annual depreciation rate for AI assets is typically around 20%, this means that tech giants will face an annual depreciation cost of $400 billion, which exceeds their total profits for 2025.

BCA Research also mentions that the expected price-to-earnings ratio for the S&P 500 index at the beginning of 2026 will be as high as 22.6 times, well above the historical median of 18 times. The already fragile stock market will find it even harder to sustain itself under the impact of the collapse of the optimistic narrative surrounding AI. BCA Research predicts that "in the second half of 2026, nearly all sectors of the U.S. stock market will experience a crash." However, this will also prompt the Federal Reserve to accelerate its rate cuts in the second half of 2026, with the federal funds rate expected to drop to 2.25% by the end of 2026, and the yield on 10-year U.S. Treasury bonds falling to 3.1%.