① Global tech stocks suffered a “Black Tuesday,” with South Korea’s Samsung and SK Hynix plunging over 12%, dragging the KOSPI index down 10%. Major U.S. tech stocks also fell significantly, with Nvidia and Micron posting notable declines.
② “New Bond King” Jeffrey Gundlach and “Stock Market Prophet” Felix Zulauf predict that the AI-driven bull market is nearing its end, and the market will experience a major bear market with a decline of 30% to 50%.
June 23 — On Tuesday, global tech stocks experienced a “Black Tuesday” — starting with South Korea’s Samsung and SK Hynix both plunging over 12%, dragging the KOSPI index down 10%, tech stocks in Japan, China’s Taiwan region, A-shares, and Hong Kong stocks all fell collectively. Now, as U.S. pre-market trading has begun, major U.S. tech stocks have also shown significant declines.
Moreover, the market is in the late stages of a capital expenditure and AI-driven upcycle.
At the opening of the conversation, Zulauf delivered a heavyweight conclusion: we are currently at the end of the AI cycle, and this AI cycle may peak between the third quarter of this year and the first quarter of next year. After that, the market will experience a comprehensive bear market characterized by “recession accompanied by valuation contraction,” with an expected decline of 30% to 50%. Zulauf presented several bear market signals he has observed: the capital expenditure of major U.S. cloud service giants as a share of revenue has surged from about 10% in the past to 30%, and memory chip prices have risen by 200% to 300%. More alarmingly, the free cash flow of some large technology companies has turned negative—Oracle is a typical example. He warned that once these companies are forced to turn to capital markets for financing and cash flow continues to shrink, the entire AI investment cycle will begin to cool. The key indicator for observing whether the market has peaked is the performance of semiconductor stocks that provide infrastructure for the AI industry. Gundlach agreed and pointed out that funds in the U.S. stock market are currently highly concentrated in the AI sector—the top ten U.S. stocks already account for 41% of the S&P 500 index weight, a level of concentration almost entirely consistent with previous market cycle peaks. At present, the U.S. stock market has begun to underperform other regions globally, and he believes this trend has only just entered its second half. Even in a Recession, U.S. Treasury Yields Will Not Fall? Regarding interest rates and the fiscal outlook, Gundlach believes that even during an economic recession, long-term U.S. Treasury yields will not decline significantly—this is the most counterintuitive judgment in the conversation. The general market logic is that an economic recession will prompt the central bank to cut interest rates, thereby driving long-end yields lower and bond prices higher. However, Gundlach pointed out that because the U.S. government’s interest expenses have surged from $300 billion per year seven years ago to nearly $1.4 trillion, and the deficit continues to expand at an annual level of $2 trillion, accounting for about 6% of GDP. Therefore, once a recession truly arrives, the deficit as a share of GDP may climb to 10% or even higher, triggering a “buyer’s strike” in U.S. Treasuries. In other words, even during an economic downturn, U.S. Treasury yields will not decline markedly. He suggested that if such a deterioration occurs, policy responses such as yield curve control (YCC) or restructuring Treasury debt should be considered. In fact, last year Gundlach publicly raised the idea of U.S. Treasury restructuring, and Kevin Hassett, director of the White House National Economic Council, directly rejected the idea at the time, stating that it was “absolutely impossible.”Gundlach mocked in the conversation that Hassett’s “no way” sounds just like Wall Street’s “never,” and on Wall Street, “never” is often the precursor to “about to happen.”
In terms of private credit, Gundlach’s assessment was even more unsparing. He stated bluntly that the current US credit environment feels to him like the conditions of 2005 to 2006: fake ratings, liquidity illusions, hidden risk exposures, and a distorted network tightly linking private equity, private credit, and offshore reinsurance, lacking transparency and regulatory oversight. He cited as an example that some small private credit rating agencies in the US have only about 30 employees yet must rate hundreds of loans, each with documents running two to three hundred pages. He said bluntly that these agencies are less engaged in credit analysis than in charging fees by rating tier. Zulauf added that he expects some private credit firms will disappear, and that a full reckoning will only arrive when the market reverses and the tide of capital recedes.
