Famous Wall Street short seller returns: There are risks in the US stock market, predicting that the S&P 500 will drop by at least 1,000 points

According to Zhitong Finance, Marko Kolanovic, a well-known short seller on Wall Street and former strategist at Morgan Stanley, stated that the U.S. stock market faces numerous risks, from high concentration to geopolitical turmoil, and it will still face a significant decline. The S&P 500 index is currently trading above 6,000 points, having reached a new high two weeks ago, but Kolanovic expects the index to drop by 1,000 points or more.

The news of Kolanovic's sudden departure from JP Morgan last summer shocked Wall Street, and many events have occurred since then: the Federal Reserve cut interest rates for the first time in four years, Donald Trump was elected President of the United States, and the S&P 500 index rose by another 9%. His former colleagues have also abandoned their pessimistic views. However, in the eyes of this renowned strategist, not much has changed. When he left the industry last year, he was one of the last remaining pessimists opposing the bull market.

Kolanovic stated on the Odd Lots podcast, "I do believe that this year we will fall back to around 5,000 points. The potential turmoil brought about by the new political climate could significantly bring the index down to 4,000 points—I think that is possible."

Although Kolanovic has not changed his rhetoric, this pessimistic forecast seems timely, as large tech stocks have remained flat over the past six weeks, and there is strong skepticism about the U.S. dominance in the field of artificial intelligence. Concerns are growing that stubborn inflation may force Federal Reserve officials to keep interest rates higher than initially expected. Additionally, the new White House policies could disrupt the economic and geopolitical landscape.

Last week, concerns over the cheap AI model from Chinese startup DeepSeek led to a $1 trillion collapse in the U.S. stock market, with Nvidia (NVDA.US) losing $593 billion in market value in a single trading day, marking the largest drop in U.S. stock market history. Since then, the index has recovered most of its losses, but Kolanovic is skeptical that more turmoil will not occur in the future.

Kolanovic remarked, "This may not be over yet; we will have some important earnings reports, so it remains to be seen, perhaps there will be another week of earnings reports to see if there will be any form of follow-up."

Before leaving JP Morgan, Kolanovic was one of the few on Wall Street who remained skeptical about the stock market after a strong rebound that began in October 2022. He continuously warned that risks were increasing, from economic slowdown to geopolitical tensions, and the weakening momentum of high-flying stocks that had driven the market up.

These adverse factors still exist. Kolanovic warned that, from a technical perspective, historical high concentration makes the stock market vulnerable to sharp reversals. He stated that the unprecedented imbalance between the top ten stocks and the rest of the market cannot last, and a cyclical downturn may occur to "clear and normalize" soaring valuations. Kolanovic said, "In 2000, this number was so high, and we know how it ended."

Kolanovic added that, of course, accurately judging when these risks will begin to take effect is a tricky matter, and he admitted that he stood on the wrong side of the stock market rise. He stated, "Many people have been hurt, including myself." "Last year we were more pessimistic, basically the market momentum was strong, so timing will be a challenge."

From the decline in U.S. stocks triggered by DeepSeek last week to the short-term yen carry trade unwinding that sparked a global sell-off in August, traders have become familiar with the pain that such events can bring.

Kolanovic previously worked at Bear Stearns and joined JP Morgan when it acquired Bear Stearns in 2008. This strategist came to the U.S. from Croatia in the 1990s, studied at New York University, and earned a Ph.D. in theoretical physics in 2003, which laid the foundation for his quantitative analysis skills.

Kolanovic has earned a reputation as a market oracle, predicting the stock market crash in 2015, the "Volmageddon" volatility explosion in 2018, and the recovery rebound after the COVID-19 pandemic. Due to his foresight, he is referred to as "Gandalf," but in the two years before he left JP Morgan, his vision seemed to have faded. Throughout much of 2022, when the S&P 500 index fell by 19% and Wall Street strategists lowered their expectations for the stock market, he remained bullish and maintained a bearish stance during the double-digit rebounds in 2023 and 2024.

This strategist has not yet announced his next steps. However, he still has a large following among investors. After leaving JP Morgan, he joined social media platforms including x, but when asked if he plans to join TikTok and make market predictions, he replied, "Never."