Veteran hedge fund manager says stock market is about to get very ugly

A veteran hedge fund manager has issued a stark warning about the stock market in 2025. 

Felix Zulauf, head of Swiss firm Zulauf Consulting, told Barron's that next year will be turbulent for Wall Street. 

The former hedge fund boss said there will be an extended 'Santa Claus rally' when stocks do well due to consumer spending in the holiday period, but will then fall into a nasty correction, Barron's reported. 

The correction in the S&P 500, the main US index, could be as much as 15 percent, he told the publication.  

The market will then move to hit new highs later in the year, but this will again be followed by a painful bear market, Zulauf argued. 

'I think long-term liquidity indicators suggest that we are going to top out during '25, and then decline sharply in '26, which would mean that we probably make the final market top sometime in '25,' he said. 

Zulauf warned that if the stock market does tank it will hurt individual consumer's household budgets, in turn sucking money out of the economy.

'I spend a lot of time in Florida, and I know many of those people who are wealthy and have a strong balance sheet,' Zulauf said. 

'And I can tell you if the market goes down 20 percent, they will spend less and cut back. I have seen that in the past, and it will also hold in the future.' 

But the long-standing Wall Street scion did point towards another factor that may spell good news for financial markets next year. 

Over the last century, years ending in 5 have been consistently positive for the stock market. 

The exception to this rule was 2015, when stocks came in negative 1 percent for the year.

Although this may sound more like superstition, Zulauf argues that it is actually related to a financial theory called the Juglar Cycle.

Overall Zulauf remains confident on America, even as the world economy looks increasingly uncertain.

'Economically, the world is not doing well. The U.S. is doing well,' he told Barron's. 

'Europe is sort of stagnating, and I think Europe is in such a mess that it is a structural recession that could last three, four years of stagnation. China is trapped in a deflationary situation and will not come out of it,' he also argued.

He also pointed out that Europe will be more vulnerable to the effects of tariff's that have been threatened by President-elect Donald Trump.

Zulauf pointed out that the market's success in recent years has become increasingly dependent on the big tech companies, such as Apple, Meta and Tesla.