A sharp reset in U.S. equities may be closer than most investors expect, according to veteran trader and strategist Todd Horwitz.
In recent comments, Horwitz painted a picture of markets supported by fragile assumptions, arguing that the risks building across policy, labor, and corporate balance sheets are being widely underestimated.
Key Takeaways
Todd Horwitz warns U.S. stocks are vulnerable to a deep revaluation rather than a short-term pullback.
He argues that rate cuts mainly benefit banks and government debt, not households.
AI-driven job losses could weaken earnings and consumer demand over time.
Despite the bearish outlook, Horwitz remains invested but emphasizes hedging with derivatives and precious metals.
Instead of focusing on one trigger, Horwitz described a system under strain from multiple directions at once. He pointed to abandoned merger activity, stress signals inside the banking sector, and an economic environment that resembles stagflation rather than recovery. In his view, these developments suggest the market is late-cycle, even if headline indices continue to hover near highs.
Why easier money could backfire
Contrary to the belief that rate cuts would cushion the economy, Horwitz said looser monetary policy may worsen the imbalance. Despite having supported Donald Trump in past elections, he argued that additional rate cuts would largely benefit banks and government debt financing, not households.
According to Horwitz, lower borrowing costs do little to offset rising living expenses or weak wage growth. Instead, they encourage more federal borrowing while keeping inflationary pressures alive. Without serious restraint on spending, he warned, monetary easing risks prolonging the problem rather than solving it.
A valuation reset still ahead
Horwitz believes equity markets have not yet priced in the full economic slowdown. Rather than predicting a sudden crash, he expects a prolonged revaluation phase that could ultimately cut stock prices nearly in half.
He estimates that a decline of 40% to 60% across equities is plausible over the next market cycle, driven by weaker earnings power and declining consumer strength. From his perspective, current valuations rely on optimism that the economy can absorb rising debt, technological disruption, and policy missteps all at once.
Labor markets face structural disruption
Beyond markets and policy, Horwitz flagged employment trends as a critical vulnerability. He said job losses are likely to accelerate as artificial intelligence replaces roles faster than new ones can be created.
Unlike past economic downturns, he warned that displaced workers may struggle to re-enter the workforce due to the scale and speed of automation. That erosion of earning power, he said, could reduce consumption and deepen economic stress.
Skepticism toward the AI boom
Horwitz also questioned the sustainability of today’s AI-driven market leaders. Echoing concerns raised by investors such as Michael Burry, he suggested that some companies central to the AI narrative, including Nvidia, may be overstating growth through aggressive internal spending.
He described this dynamic as masking true profitability, creating valuation risks if capital becomes tighter or demand growth slows. In his view, these pressures could unwind quickly if investor sentiment shifts.
Staying invested, but not unprotected
Despite his bearish outlook, Horwitz said he remains active in the stock market. Rather than exiting entirely, he favors hedging strategies using derivatives and exposure to precious metals to manage downside risk.
Looking further ahead, he warned that falling incomes and rising automation could push governments toward heavier intervention, including discussions around universal basic income. Whether that outcome materializes or not, Horwitz believes the current market environment leaves little margin for error.
His message to investors is not one of panic, but of preparation: markets can remain elevated longer than expected, but when structural cracks widen, declines tend to be deeper than most anticipate.
