Why this strategist is expecting a lost decade for U.S. stocks, even without a recession

Why This Strategist Is Expecting a Lost Decade for U.S. Stocks — Even Without a Recession

AI is a ‘bubble’ that won’t do U.S. stocks any favors, says Marko Papic

By Steven Orlowski, CFP, CNPR

Despite the euphoria surrounding artificial intelligence and its perceived potential to supercharge economic growth and equity markets, one leading strategist is sounding the alarm: U.S. stocks may be headed for a "lost decade," even in the absence of a recession.

Marko Papic, Chief Strategist at Clocktower Group, believes investors are placing too much faith in AI-driven innovation while ignoring broader macroeconomic and geopolitical headwinds. According to Papic, the AI boom resembles a speculative bubble more than a sustainable growth engine — and it may be setting markets up for years of disappointing returns.

A Lost Decade in the Making

Papic's thesis echoes concerns reminiscent of the early 2000s. Just as the dot-com bubble ushered in a decade of underperformance for U.S. equities, he argues, today’s AI craze risks a similar outcome.

“We don’t need a recession to see a long period of stagnation,” Papic said in a recent note to clients. “You can have strong nominal GDP growth and still have disappointing equity returns if valuations are simply too high.”

Indeed, valuations are stretched. The S&P 500 trades at a forward price-to-earnings ratio well above historical averages, propped up largely by a handful of mega-cap tech stocks — many of them riding the AI wave. But Papic warns that this narrow market leadership is not sustainable, and investors are underestimating how long it will take for AI to materially impact corporate profits across the broader economy.

The AI Illusion

At the heart of Papic’s bearish outlook is skepticism about AI’s short-term economic impact. While generative AI has captured the imagination of investors and executives alike, he argues that the technology is still too immature to justify the level of hype — or the multi-trillion-dollar market cap gains — it has sparked.

“AI is a bubble,” Papic said bluntly. “The transformative potential may be real, but markets are pricing in that transformation happening almost overnight. That’s not how technological adoption works.”

He compares today’s enthusiasm to past tech-driven manias: railroads in the 19th century, telecom in the 1990s, and cryptocurrencies more recently. All had significant long-term effects, but none delivered immediate, market-wide profits. Instead, they were followed by sharp corrections and prolonged periods of sideways movement.

Policy Headwinds and Global Shifts

Papic also points to structural factors that will weigh on U.S. equities over the next decade, regardless of AI’s trajectory. Chief among them is a shift away from the low-inflation, low-interest-rate environment that fueled the bull market of the 2010s.

“Real interest rates are no longer going to be zero,” he noted. “That changes the discount rate for future earnings and puts pressure on valuations.”

On top of that, deglobalization, rising fiscal deficits, and growing geopolitical fragmentation — particularly the U.S.-China rivalry — could erode the earnings power of multinationals and increase market volatility.

What Should Investors Do?

So where does this leave investors? Papic is not advocating a move to cash, but he does suggest a more global and value-oriented approach. He believes international equities, especially in emerging markets and regions with favorable demographics and commodity exposure, may outperform U.S. stocks over the coming decade.

“You want to be in places where valuations are low and policy tailwinds exist,” he said. “That’s not the U.S. right now.”

In his view, the next ten years could mirror the 2000s — a decade in which the S&P 500 delivered virtually no real return, while international markets and hard assets fared much better.

Final Thoughts

Papic’s outlook may be contrarian in a market obsessed with AI, but it’s a reminder that long-term investing success often comes from seeing through the hype. While the future of AI is bright, the path to widespread profitability may be far bumpier — and longer — than Wall Street expects.

For investors banking on a new golden era for U.S. stocks, this strategist has a sobering message: don’t count on it.