"Excessive optimism... When 'that day' comes, US stock market will plunge" Bombshell forecast

"Despite poor indicators such as U.S. gross domestic product (GDP) growth rate, inflation, and corporate earnings, stock prices are rising. This means that investors are being excessively optimistic."

Ronald Temple, Chief Market Strategist at Lazard Asset Management (pictured), stressed in an interview with The Korea Economic Daily on the 22nd that we should be wary of the widespread optimism in the market, saying, "The U.S. stock market has almost reached its peak." He pointed out that the current situation, with indices like NASDAQ and S&P 500 repeatedly hitting record highs, is "not normal." Temple, who oversees Lazard Asset Management's macroeconomic strategies and market outlook, is regarded as a geopolitical expert on Wall Street.

He said much of this is due to Donald Trump’s administration repeatedly reversing tariff policies. Temple said, "After the announcement of mutual tariffs in April, U.S. stocks, bonds, and currencies were all sold off en masse, prompting the government to hurriedly postpone the policy and resulting in a market recovery," adding, "The expectation that the government would again change policies if conditions worsened was the catalyst for the spread of optimism."

Temple warned that the market could change after the so-called 'Trump Tariff D-day' on the 1st of next month. He said, "U.S. stock indices could fall by 10–15%." This is because tariffs could fuel inflation. Temple said, "If high interest rates are kept due to inflation, stock multiples (company valuation ratios) are bound to shrink," and added, "If real wage growth for workers slows, consumption will decrease and eventually, so will corporate earnings."

Another negative is that the likelihood of an interest rate cut by the Fed this year is close to zero. He forecast, "The Fed cannot cut rates amid high inflation; a cut won’t start until next year at the earliest." He also noted that the recently enacted 'One Big Beautiful Bill Act (OBBBA)', which includes strict immigration policies, is another reason delaying the timing of a rate cut. Temple explained, "If immigrants are detained/deported and the U.S. labor force shrinks, companies’ labor costs go up. This, too, can act as inflationary pressure."

Temple advised that, with volatility expected to increase in the U.S. stock market after tariffs are imposed, the U.S. weight in portfolios should be adjusted. He recommended emerging markets, Japan, and Europe as alternative markets to the U.S. He said, "Over the next 5–10 years, emerging markets will achieve higher performance than other markets. Japan, where corporate governance is improving, and Europe, which is going through changes for growth such as fiscal expansion, are also positive outlooks."

South Korea was also highlighted as a promising investment destination. However, he diagnosed that the investment appeal of the Korean market will increase only if the low return on capital (ROC) issue is addressed. ROC is an indicator that shows how much real profit is generated relative to the capital invested.

However, he maintained a cautious stance on the Chinese market. This is because recent indicators in China, such as retail sales and real estate prices, have worsened. He added that, for sustained long-term growth, China needs fundamental fiscal structural reforms. He said, "Last September, when the Chinese government announced stimulus measures, the market surged by 30–40% in just two weeks, but when no reforms followed, stocks slowly fell again. For long-term high growth, there is a need to expand the social safety net and implement fiscal structural reforms at the local government level."

Meanwhile, Temple mentioned regarding the Iran–Israel conflict that "the crisis has not yet ended." This is because, in addition to Israel’s air superiority over Iran, there is still a possibility that Iran continues developing nuclear weapons. However, he anticipated that a resumption of military conflict would not have a significant impact on energy prices. He explained, "Even if Israel carries out additional attacks on Iran, as long as energy supply via the Strait of Hormuz continues without disruption, the increase in oil prices is expected to be limited."

Jiyoon Yang, yang@hankyung.com