TOP STORY
📉 Why One Analyst Is Predicting a 30% Market Crash in 2027

☀️ Happy Sunday everyone!

👀 Over the past few months, we’ve watched the odds of an interest rate hike jump from 35% in early August to nearly 90% as inflation rises and employment numbers come back stronger than expected…

🏦 Well, on Wednesday the predictions came true, with the Fed officially raising rates by 0.25% (its first hike in more than 3 years), bringing the benchmark rate to 3.75%-4.00%, with Fed Chair Kevin Warsh citing inflation as the main culprit.

📉 As expected, stocks fell, with the S&P 500 falling 1.2%, but quickly recovered the next day and ended the week mostly flat. Across the week:

• The S&P 500 fell -0.08%

• The Nasdaq 100 rose +0.94%

• The TSX rose +0.31%

📊 A few other key metrics to keep an eye on:

• 📈 The 10-year U.S. Treasury yield hit 5% for the first time since 2007

• 🛢️ Brent Crude soared to a 4-month high of $106/barrel on Tuesday following an attack on a Saudi pipeline.

• ₿ And Bitcoin ($BTC) rose more than 7% back above $80,000 for the first time since September 7 after the SEC cleared a 5-year regulatory path to trade tokenized U.S. stocks

🤖 Looking at AI stocks, the week started with panic following a 4,000-word letter by Anthropic CEO Dario Amodei calling for AI companies to slow down, backed by both Sam Altman and Elon Musk, sending chip stocks like Nvidia ($NVDA) and Intel ($INTC) falling Monday morning on fears of a broader crash.

😮‍💨 But markets shook it off, clawing back most of the losses within days (Nvidia for example, ended the week up 2%, a very different outcome than the ‘big crash’ many were predicting)

😰 But some analysts say a real crash is still on the way, with one predicting 2027 will be one of the 7 worst crashes of the past century. So, let’s talk about it…

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TOP STORY
👀 So… Are We Headed for an AI-Driven Market Crash?

💡 Let me start by saying this feature story isn’t meant to spread doom and gloom. Many analysts and experts have been calling for a crash for a few years now, and have been wrong time and time again.

🫧 But a report in Fortune this week highlighted some interesting new data points, so I think it’s worth revisiting some of latest arguments about whether a crash is on the horizon…

🔮 The recent prediction comes from Capital Economics analyst James Reilly, who called the AI trade a “late-stage bubble” and is projecting a 30% drop in the S&P 500 from its highs by 2027.

💥 If true, this would make it one of the seven worst crashes of the past century, so let’s dive into his argument.

😬 IPOs of Doom, S&P Concentration, and Negative Free Cash Flow

📊 In his report, Reilly analyzed 8 categories of market indicators (from valuations to earnings concentration) and found most sitting at levels that have historically preceded major market peaks, including:

• 📈 S&P 500 earnings growth concentrated almost entirely in tech and chips, now matching dot-com era peaks

• 💸 Combined free cash flow of the four largest AI hyperscalers projected to turn negative in 2027 due to AI CapEx

• 🏦 Big Tech bond issuance more than doubling year-over-year to fund the cash flow gap

• 🚀 A fresh wave of AI IPOs, which Reilly calls the clearest late-bubble signal (most notably Anthropic’s IPO, which he called an ‘IPO of doom’ and compared to Pets.com, whose IPO was seen as the beginning of the end for the dot-com bubble)

🎢 "Crazy Days": When One Stock Swings a Whole City

🤯 The market's own behavior lately isn't exactly calming those nerves. In late July, Microsoft's market value rose by $450B in a single day. The next day, Apple's fell by $360B, while Amazon gained $388B (with one economist noting that Apple’s loss was "3.6 Hurricane Sandys" worth of damage).

🌀 These swings have led to some of the highest stock volatility in the past decade, with Lamont’s “dispersion index” (which tracks how wildly individual stocks swing compared to the market) hitting its 3rd-highest reading in the past 11 years.

💡 Lamont does note that these price moves were after earnings, so are not necessarily a warning sign, but flags that the dot-com bubble also had high “daily dispersion”.

🏦 Rising Interest Rates Make Things Even Worse

😳 What’s interesting is that Reilly's -30% crash forecast was his ‘restrained’ scenario, arguing it would be milder than the 50% dot-com crash because he assumed the Fed would not raise interest rates (which, as we saw Wednesday, turned out to be wrong).

💡 As a quick refresher on why interest rates matter so much, higher interest rates mean all companies building expensive data centers have to borrow at higher costs.

📉 And that’s exactly how the dot-com bubble ended: between June 1999 and May 2000, the Fed hiked rates from 4.75% to 6.50%, and the S&P 500 fell nearly 50% over the next 2 1/2 years.

⚠️ So with the Fed raising rates again, it marks yet another danger for the market, with JPMorgan saying that “The Fed had painted itself into a rate-hiking corner” and UBS calling the new Fed chair “the most hawkish Chairman since 1933”.

🐻 And Reilly Isn't Alone…

⚠️ Zooming out, Reilly's report is the loudest of a growing chorus of crash warnings. A few other bear arguments made recently:

• 🏦 The BIS (the "central bank of central banks") issued its own warning: AI capex is increasingly funded with DEBT, credit spreads are widening, and circular financing raises the risk that one company's slowdown cascades through the whole cluster

• 🌎 Jefferies' Chris Wood warns AI capex is on track to hit 3.1% of GDP by 2027 (roughly 3x the dot-com telecom buildout relative to the economy). Some economists note that without AI spending, the US might already be in a recession

• 📄 Moody's counts $662B in data center lease commitments that hyperscalers have signed but not yet started paying, more than their combined on-balance-sheet debt

🤔 So is it time to panic? Morgan Stanley doesn't think so. In fact, they just told clients this is "silly season," not a bubble, and they're calling for the S&P to hit new highs next year.

📊 But before we dive into the arguments against the crash, a quick word about some of the cool ETFs I learned about at Futureproof!

AT FUTUREPROOF
⭐️ Some ETFs to Add to Your Watchlist from the Biggest Advisor Conference in the US

😎 This week, some of the Blossom team and I were down at Futureproof, the biggest conference in the US for Asset Managers and Financial Advisors, and I wanted to highlight a few of the cool ETFs to add to your watchlist:

• $GRNY — Granny Shots US Large Cap ETF (Fundstrat): Tom Lee (the Wall Street strategist famous for his market calls) packs his team's ~40 highest-conviction US large caps into an active ETF. Nearly $4B in under two years, one of the fastest growing active-ETF launches ever.

• $SSK — REX-Osprey Solana + Staking ETF: the first US-listed ETF to hold Solana and stake it, earning crypto staking rewards on top of price exposure.

• $TSCM — TimesSquare Quality Mid Cap Growth ETF: an actively managed portfolio of 30–40 quality mid-cap growth stocks from a 25-year institutional manager.

• $KSMH — xETFs Korean Semiconductor ETF: pure-play exposure to Korea's chipmakers, Samsung, SK Hynix and the memory/HBM supply chain, in one US-listed ticker.

• $USO — United States Oil Fund (USCF): tracks the price of crude oil directly via futures, rather than owning oil company stocks.

• $TMFC — Motley Fool 100 Index ETF: an index of the top 100 US stocks recommended by Motley Fool analysts.

• $EVSB — Eaton Vance Ultra-Short Income ETF: an actively managed "cash-plus" fund from Morgan Stanley's income shop, very short-term, investment-grade bonds aiming to squeeze a bit more yield out of money you'd otherwise park in a savings account or T-bill ETF, with monthly payouts.

🙋‍♂️ Hope you find a few as interesting as I did!

TOP STORY CONT.
🤪 Morgan Stanley says it’s ‘Silly Season’, Not a Bubble

🚀 Now there are plenty of experts who think Reilly and the crash predictors have it wrong. Take Morgan Stanley’s CIO Lisa Shalett, who says she isn’t too worried about rate hikes and AI bubble concerns.

📐 Her reasoning? Well, the S&P 500’s forward P/E already fell from 22.5x in January to ~19.5x as of today, so stocks are getting less expensive, not more. And despite concentration issues, the market is still rocketing ahead with ~30%+ earnings growth.

🔎 And the dot-com comparison gets shakier the closer you look at the individual companies: today's leaders like Nvidia and Microsoft trade at roughly 30x forward earnings, while at the 2000 peak, Cisco and Oracle traded above 120x.

🌍 On the macro environment overall, Lisa says that rising rates, oil stress, and politics are real, but that “markets appear to be pricing them in clear-eyed fashion.” And that AI investments are “mostly rate-insensitive” anyway, so a hike or two probably won’t slow hyperscalers down, which was reiterated by analyst Bill Merz:

🤪 Overall, Shalett calls the time we’re entering (September-October) “Wall Street’s proverbial silly season,” and expects the S&P 500 to hit 8,000 by year-end and 8,300 by mid-2027.

🤔 So, What’s the Takeaway for Your Portfolio?

🤷 The takeaway here is that we're in a peculiar market with a lot of moving parts… but as Peter Lynch famously put it,

💡 For a long-term investor in particular, this doesn’t mean you should ignore the arguments - it means stress-testing your portfolio against them. If Reilly's 30% drop happened next year, would you be forced to sell, or could you ride it out (or even buy)?

🧪 This is a helpful test to make sure your portfolio matches your goals and risk tolerance, and ensure you haven’t got swept up in the hype.

🌼 What do you think 2027 has in store for us? Share your thoughts on my Blossom poll and join the conversation with 850,000+ other investors!

👉 But enough about crashes that haven't happened yet, let’s switch gears to the other top stories of the week across Meta, SpaceX, and more…

IN OTHER NEWS
🗞️ Meta Launches Muse, Buffett Steps Down and SpaceX Scores a Big Win

🥇 Meta Launches New "Muse" AI Agent & Hits #1 on the App Store

• 🥇 On Friday, Meta's ($META) new AI agent "Muse" officially hit #1 on the U.S. App Store, ahead of ChatGPT (#2), Gemini (#8), and Claude (#13).

• 🤖 Muse is Meta's answer to GPT-6 Astra, with Meta framing it not as a chatbot, but as an assistant you delegate to. Rather than answering one question at a time, it takes on whole tasks (booking flights, managing your calendar, cleaning up your inbox) and keeps working until they're finished.

• 📈 Analysts called it the clearest proof yet that Meta's projected $130-145 billion in 2026 AI spending is turning into products people actually use, with JPMorgan upgrading the stock to Overweight (raising its target from $640 to $820) and the stock up over 20% in the past month.

• 👀 That said, downloads don’t equal victory. As Morgan Stanley's Brian Nowak put it, "we view engagement as the initial barometer": the real test is whether people are still using Muse a few months from now (and whether Meta can monetize it).

🏛️ Warren Buffett Steps Down as Berkshire Chairman

• 👴 Berkshire Hathaway announced Friday that Warren Buffett, age 96, is officially stepping down as chairman effective immediately, ending a run in the role since 1970. He’ll become chairman emeritus (allowed to retain the title as an honor) while remaining on the board.

• 👶 His son Howard Buffett, a Berkshire director since 1993, will take the role, as part of what the company called a long-term succession plan after Buffett handed the CEO title to Greg Abel at the end of last year.

• 💬 Buffett wrote in his letter to shareholders that “Father Time always wins,” adding “He has, however, been generous with me.”

• 📉 Berkshire ($BRK-B) shares barely moved on the news, with investors assumed to already have priced in the transition.

🚀 NASA Awards SpaceX Another $946 Million

• 📄 Also on Friday, NASA awarded SpaceX ($SPCX) a $946 million contract modification, adding three more crewed missions (Crew-15, 16, and 17) to the International Space Station under its Commercial Crew program, extending SpaceX’s role through 2030.

• 📈 This now brings SpaceX’s total NASA missions to 17, with the cumulative contract value totaling nearly $6 billion.

• ⚠️ The award comes as Boeing’s ($BA) Starliner remains grounded and still hasn’t flown an operational crew rotation mission for NASA, leaving SpaceX as the agency’s sole reliable ride to the station for now.

🎬 Paramount’s $110 Billion Warner Deal Nears Its Deadline

• 🥊 Paramount Skydance’s ($PSKY) $110 billion acquisition of Warner Bros. Discovery ($WBD), the deal that beat out a rival Netflix ($NFLX) bid back in February after Netflix declined to match Paramount’s $31-per-share offer (read our breakdown of that here), is now racing toward its self-imposed close date of September 30th.

• ⏰ If it slips past that date, WBD shareholders start collecting a $0.25-per-share quarterly “ticking fee” until the deal actually closes.

• 📚 The combined company is expected to control a film library of more than 15,000 titles, spanning franchises like Harry Potter, Mission Impossible, Lord of the Rings, and the DC Universe all under one name.

• ⚖️ Even if the deal shakes hands, it’s expected to still face antitrust scrutiny in both the U.S. and Europe before it can officially close.

FROM THE BLOSSOM COMMUNITY
⭐️ Featured Posts of the Week

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