Strategist warns S&P 500 could fall up to 35% as risks build

Larry McDonald, a longtime strategist and former Lehman Brothers trader, said he sees the S&P 500 potentially dropping 20% to 35% through the first quarter of next year and advised investors to sell rallies. "Your risk-reward is really poor," he warned, noting that big parts of the market are already rolling over and that the Magnificent Seven are about 11% off their 2025 peaks.

The S&P 500 has fallen 3% so far this year, and McDonald’s bearish scenario implies a slide to roughly 4,365, a level not seen since late 2023. One immediate concern is surging oil tied to the war in Iran, which could boost inflation and remove the prospect of Fed rate cuts.

Americans are paying more at the pump: the national average for a gallon of gas rose to $3.84 from $2.92 a month ago. Markets are also pricing in less easing, with the odds that the Fed won’t cut rates this year rising to 40% from about 5% a month earlier, per the CME FedWatch tool.

United States

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