Joachim Klement Issues Most Bearish S&P 500 Call Based on Key Technical Signal

Joachim Klement, head of market strategy at Panmure Liberum, forecasts the S&P 500 will close at 5,000 points by the end of 2027.

He cautions that the unwinding of the artificial intelligence trade could trigger the most severe market downturn since the 2008 financial crisis.

Rising Borrowing Costs Threaten AI Expansion

Klement's 5,000 target represents a decline of roughly 36% from the index's October 7 close of 7,801.77. The S&P 500 has risen 13.97% so far this year, though AI stocks have driven most of the gains.

Over the half-year leading up to October 6, the benchmark advanced 18.3%. Goldman Sachs' index that excludes AI enablers gained just 6.7% over the same stretch.

Klement's projection marks a notable reversal from just weeks prior, when he anticipated the index would reach 8,300 by late 2027.

He shifted his outlook due to concerns that persistent inflation and elevated borrowing costs could disrupt the AI infrastructure build-out. He noted that hyperscalers have mostly exhausted their free cash flow.

Additionally, debt costs are rising quickly enough to become restrictive for those firms, he said. Klement gave a two-year timeframe for the shift.

“My core conviction is that the AI bubble will either burst in 2027 or in 2028, so sometime in the next two years,” he said.

Bloomberg Intelligence estimates hyperscaler data-center capital expenditure could more than double in 2026, reaching $713 billion. The figure is expected to climb again the following year, albeit at a slower pace.

Wall Street's Most Bearish Forecast

His outlook is by far the most pessimistic among strategists tracked by Bloomberg. The other seven project average upside of 14%.

Still, other major investors share Klement's caution on the AI trade. Temasek International's CIO identified a reversal of the AI trade as a major risk for global markets. Ray Dalio warned that the AI surge resembles a “classic bubble” that may be nearing a burst.

By contrast, Barclays held its 2027 S&P 500 target at 8,800 when it lifted its year-end forecast in September. Citigroup strategists also said this week that solid earnings in 2027 can support equities despite higher interest rates.

In Europe, Klement expects the Stoxx 600 to slide to 430 by the end of 2027, more than 30% below where it stands now. Still, he remains the most bullish tracked strategist on that index through 2026, predicting gains of around 10%.

He acknowledged that the bearish call might come too early.

“I’m starting to worry people today for something that I think might happen in six to nine months,” he added.

Investor Michael Burry also pointed to a 6- to 9-month window this week. He said stocks are in denial, a phase that persisted for that duration before the 2000 and 2008 crashes.

Klement's primary signal is the S&P 500 falling below its 200-day moving average, which last happened in March. Should that occur, he would shift fully defensive, preferring food, tobacco, and pharmaceutical stocks.

He told Reuters that strong earnings and resilient economic data still support stocks. Third-quarter results and 2027 guidance due early next year will test whether that holds, he said.