Top economist warns upcoming market blow-off ‘feels unstoppable’

Economist Henrik Zeberg is warning that global financial markets are approaching a dangerous late-stage blow-off top, as part of his long-standing bearish outlook on the economy. 

According to Zeberg, the surge in equities and other risk assets is reaching unsustainable extremes even as the underlying economic foundation continues to weaken, he said in a Substack post on December 29. 

He argued that the current market euphoria traces back to post-2008 crisis policies, when central banks cut interest rates to zero and launched massive quantitative easing programs. 

Therefore, the flood of cheap credit inflated prices across stocks, bonds, real estate, and later cryptocurrencies, while productivity, wages, and real economic growth lagged, creating what he describes as an illusion of prosperity.

The imbalance is especially in U.S. markets. Since the 2009 low, the S&P 500 has surged more than 900%, far outpacing economic growth. 

He pointed out that housing prices have moved above pre-crisis bubble highs, speculative technology firms command lofty valuations despite weak profits, and by 2025, total U.S. stock market capitalization had climbed above 225% of GDP, surpassing the peaks seen in 1929 and 2000.

Zeberg characterized the rally as the final stage of a credit-fueled bull market, pointing to the near-vertical rise in equities following the 2022 downturn as a classic late-cycle surge marked by frantic buying and fading momentum. 

Detachment from fundamentals 

The expert pointed out that the move is increasingly detached from fundamentals, with slowing economic growth occurring alongside rising stock prices, a pattern that has historically preceded sharp reversals.

He also highlighted the widespread belief that central banks will continue to protect markets as a major risk. 

Years of intervention by the Federal Reserve and other central banks have bred complacency, encouraged excessive leverage and speculation, and weakened risk discipline, extending the cycle while amplifying its downside.

Finally, Zeberg warned that much of the apparent wealth in the system is credit-based and vulnerable to reversal. 

To this end, as the business cycle reasserts itself, he expects the consequences of prolonged monetary excess to surface abruptly, exposing market fragility and setting the stage for a severe correction that could mark the end of the post-2008 monetary era.

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