MW Wall Street could be facing a long bear market, this viral report warns. Here's how investors can prepare.

By Joseph Adinolfi

A confluence of factors are conspiring to drive stocks lower

A perfect storm could push stocks into a long, grinding bear market unlike anything investors have witnessed in decades, according to a recent report that is going viral on social media.

In the report, published by the Substack blog "The Last Bear Standing," the author made the case that the sense of complacency that has shielded stocks from deeper losses could soon yield to anxiety, denial and panic as a confluence of factors usher in a punishing bear market. The ensuing downturn could make 2022 - the worst year for stocks since 2008 - look relatively mild by comparison.

As a result, returns for U.S. stocks could be subpar for the foreseeable future as the excesses that have found their way into markets over the past five years are slowly ironed out.

"The current market environment is not facing a single threat, but rather a coordinated and confounding assault," the anonymous author of the report wrote.

According to the author, economic weakness has been percolating under the surface for a while, although it has yet to show up in marquee labor-market barometers like the monthly jobs report and weekly jobless claims.

Data has shown that job openings have shrunk, while credit-card delinquencies have continued to climb. Some popular gauges of business activity have slowed.

On Wall Street, downward revisions to corporate earnings forecasts have outpaced increases. Meanwhile, weakness in shares of Nvidia Corp. $(NVDA)$ and other formerly high-flying AI names suggest that the hype surrounding the new technology has started to fizzle.

Taken together, all of this suggests that a booming capital-investment cycle has started to turn. Over the past few years, a surge in spending on capital goods, new residential construction and a massive AI infrastructure buildout has helped keep the economy humming. Three major Biden-era spending bills, including the CHIPS Act, the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, added more fuel to the fire.

But investors sometimes forget that expansions don't last forever. And now, President Donald Trump's tariffs have injected more potentially destabilizing uncertainty into the economy while threatening to crimp corporate profit margins that had helped justify stocks' lofty valuations.

"The tariffs are the final thrust, so to speak," the report's author told MarketWatch on Wednesday. "Consumption was already looking soft coming into this."

While the author has asked to remain anonymous, other prominent investing figures contributed to the report. They included Marko Kolanovic, the former chief global strategist at JPMorgan Chase & Co., who authored its forward. James van Geelen, founder of Citrini Research, also contributed a few paragraphs to the analysis.

Neither Kolanovic nor van Geelen wanted to comment further when approached by MarketWatch.

The report landed at a time when stocks appear to be at a crossroads. Many investors are worried that stocks could continue to struggle, while the retail crowd has eagerly bought the dip.

Major equity indexes opened sharply lower on Wednesday, only to rebound into the close, with the S&P 500 SPX and Dow Jones Industrial Average DJIA finishing in the green on the final trading day of April. The Nasdaq Composite COMP finished slightly lower after falling more than 2% intraday at one point, although the index managed to finish higher in April.

Dow Jones Market Data showed intraday volatility for the S&P 500 in April hit its highest level since March 2020, when the advent of the COVID-19 pandemic provoked a powerful, if ultimately short-lived, meltdown across global markets.

Although the market has rebounded over the past week, stocks have largely struggled since Trump returned to the White House. Not since the start of President Richard Nixon's second term have major equity indexes performed so poorly during the first 100 days of a recently-elected administration, according to Dow Jones Market Data.

First-quarter GDP data released on Wednesday showed the economy shrank by 0.3% during the first quarter, although much of the decline was driven by a surge in imports. Another measure showed "core" GDP rose by a healthy 3%, according to Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott, in a post on X.

Data on private-sector payrolls also showed 62,000 jobs were created in April. Investors are now waiting on Friday's nonfarm payrolls report to see how the labor market might have been impacted by Trump's "liberation day" tariff announcement and the subsequent pause on many of those levies. Many still expect more weakness to emerge in May and June, as the tariffs could push prices higher and weigh on activity.

Although stocks have fallen since the S&P 500 hit a record high on Feb. 19, in many cases, valuations have remained lofty relative to history, the author said. Trump's tariffs should eat into corporate profit margins, which should cause multiples to contract.

He highlighted a handful of AI-related names, from Nvidia Corp. (NVDA) to Cisco Systems Inc. $(CSCO)$ to "coattail riders" like Innodata Inc. (INOD) and Intapp $(INTA)$ that could be especially vulnerable as the AI trade comes undone.

Signs of excess are hardly limited to trendy AI stocks. Even defensive stocks like Walmart Inc. $(WMT)$ and Costco Wholesale Corp. $(COST)$ could see their lofty valuations re-rate lower as tariffs eat into retailers' profit margins.

Over the past few years, investors have increasingly gravitated toward speculative instruments like call options and leveraged ETFs. After supercharging the rally on the way up, these products could help accelerate the slide into a bear market.

"Leverage in ETFs and options will serve to shatter the glass house they helped construct. Complacency sets the stage for a slide worse than 2022's shake-out," he said in the report.

Asked where investors should seek shelter from the coming fallout, the author advocated a "safety first" approach. Exposure to stocks and leverage should be reduced. And as long as bank accounts and money-market funds are offering yields north of 4%, investors should consider hiding out in cash.

-Joseph Adinolfi

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April 30, 2025 16:58 ET (20:58 GMT)

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