As the final full trading week of 2025 arrives, most analysts remain optimistic about the stock market's outlook for the coming year. Median forecasts suggest the S&P 500 could reach 7,500 points by the end of 2026. However, not all observers share this bullish sentiment.
BCA Research, led by Global Chief Strategist Peter Berezin, has released a cautionary report titled "Return of Nasdog," highlighting potential risks for major tech firms in the Nasdaq as a key drag on the market in 2026. Berezin, a well-known Wall Street bear, previously warned in July about the need to reduce equity exposure due to recession concerns and predicted the S&P 500 would finish 2025 at 4,450 points.
The firm's core thesis revolves around two major developments: the end of the AI investment boom and a significant slowdown in U.S. economic activity. BCA Research notes that tech and software investment has reached 4.4% of GDP in 2025 - approaching dot-com bubble levels - while AI assets face annual depreciation rates around 20%. This translates to $400 billion in yearly depreciation costs for tech giants, exceeding their total 2025 profits.
By early 2026, as AI application growth slows, the narrative of substantial profit boosts from AI will become increasingly untenable. The research firm argues AI lacks network effects and faces power/infrastructure constraints, making it a "highly commoditized capital-intensive industry where first-mover advantage means little."
With the S&P 500's forward P/E ratio projected at 22.6x (versus historical median of 18x), BCA warns the market is vulnerable when AI optimism fades. While acknowledging valuations aren't perfect timing tools, they note valuations indicate potential market moves during regime shifts.
The firm draws parallels to 2001, when recession followed market collapse rather than causing it. A 10% stock decline could reduce consumer demand by 0.8% of GDP given the $65 trillion in stock wealth held by U.S. households. This would coincide with worsening labor markets, surging credit defaults, and persistent housing weakness, with tariff impacts offsetting benefits from recent legislation.
BCA expects initial 2026 declines to be modest as investors rotate from tech/growth to non-tech/value stocks. However, as AI capex plummets and unemployment rises sharply, "a near across-the-board stock market crash will occur in the second half of 2026." Advertising budget cuts will hit Meta and Alphabet's Google, further pressuring AI-dependent firms like Nvidia.
The research firm forecasts the S&P 500 ending 2026 at 5,280 (down 23%) with the Nasdaq Composite falling 31%. They also predict dollar weakness (USD/JPY at 115) and record gold prices. Accelerating Fed rate cuts should bring the fed funds rate to 2.25% and 10-year Treasury yields to 3.1% by December 2026.
BCA's recommended 2026 strategy involves shorting the Nasdaq 100 via Invesco QQQ Trust and going long the iShares 20+ Year Treasury Bond ETF, projecting 52% returns for this pairing.
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