The U.S. stock market may be heading for a historic boom-and-bust cycle, according to Mark Spitznagel, founder and chief investment officer of Universa Investments, a $20 billion tail-risk hedge fund.
The S&P 500 index (.SPX) has already gained around 13% this year, recently hitting fresh record highs after the Federal Reserve cut interest rates for the first time since December. Universa, however, warns that this rally could push stocks another 20% higher before an 80% market crash on the scale of the 1929 Great Depression.
“I do expect an 80% crash … but only after a massive, euphoric, historic blow-off rally,” Spitznagel told Reuters, highlighting that the U.S. economy is still weighed down by high borrowing costs.
Universa’s Track Record
Universa specializes in protecting against “black swan” shocks—rare, high-impact market events—using instruments like stock options and credit default swaps. Since its founding in 2007, the fund has delivered an average return of over 100%, and it was among the big winners during the COVID-19 market crash in 2020.
Spitznagel emphasized that while Universa represents one of the most bearish positions in the market, its role is paradoxical — clients use it as a form of insurance while staying long on equities.
The Bigger Picture
Spitznagel has previously described the current environment as a “Goldilocks moment” for investors, where optimism builds before an inevitable downturn. He believes the long-term consequences of years of ultra-loose monetary policy since 2008, combined with recent sharp rate hikes, will eventually trigger a recession.
“We’re going to see the consequences of that … it takes time,” he warned.
Conclusion
While markets remain bullish for now, Universa’s warning raises concerns for global investors, including those in Pakistan who watch U.S. financial trends closely due to their impact on commodities, trade, and emerging market flows.
For further details, check the full coverage on Reuters, CNBC, and Bloomberg.
