This contrarian investor says the tech bubble is getting scary. Here's his game plan.

The bear market may have already begun, says Steven Jon Kaplan

One lesson learned from 2024 is that technology stocks are still providing the firepower for Wall Street which seems reluctant to doubt them in 2025.

Steven Jon Kaplan, True Contrarian blog and newsletter's chief executive, laid out a contrarian bet against tech stocks earlier this year that has yet to come true. But he's sticking to it, in our call of the day, as he sees an even bigger bubble now. His successful track record includes advice to buy during the 2020 pandemic selloff and nailing a couple of tech selloffs in recent years.

In April, Kaplan predicted the QQQ, or Invesco QQQ Trust Series QQQ, an exchange-traded fund that tracks the Nasdaq-100, would drop to 300 within a year, and below 100 within three years. It is up to 522 from 427 at the time.

"I still think that sometime in 2025, we are going to be below 300," meaning possibly a 50% drop from here, Kaplan, who has continued to short the QQQ periodically this year, told MarketWatch in an interview on Monday.

He worries about overpriced expectations for company profits and increasing evidence that AI spending from big tech companies hasn't been turning into big profits.

Kaplan said selling could begin among powerful hedge funds, which he notes make up a big percentage of daily volume for tech stocks. He notes that during the internet bubble and bust of 2000, there was no big trigger that caused that collapse, "except finally, a small number of people started selling."

Hedge funds largely now follow "momentum algorithms, which means that if something like the QQQ eventually drops 20%, then all of the sudden, those funds worth trillions of dollars will be simultaneously selling, he said. The first wave could come if the QQQ drops to 360 - Commodity Futures Trading Commission data is one place he watches hedge fund activity.

Kaplan also flags selling from company insiders seen this year - Nvidia, Microsoft, Apple, Amazon, Costco and Walmart to name a few. He notes insider selling reached a record in July, easing a little in August, but again above the record in November and December.

"So it's been a really massive amount, and it's spread from big tech stocks to a lot of the other components, a lot of the other really big U.S. companies people have been crowding," he said.

So what is Kaplan putting money in now? The perceived "boring investment" - the iShares 20+ Year Treasury Bond ETF TLT, down from $180 in March 2020 to a current $87. He expects a big move into TLT won't happen until investors start seeing losses from the stock market.

He's also been putting money in palladium via abrdn Physical Palladium Shares ETF PALL, as big hedge funds have been shorting the metal. "People still need to have things like fuel cells and cars and all the basic things we take for granted," that require the metal, making it "one really good sort of forgotten bargain out there," he says.

He says the current bear market may have already started, as he maps it out. He tracks the current bull market from March 2009, with prior bull runs from October 1990 to March 2000, and August 1921 to September 1929. Subsequent bear markets were 31 and 34 months long, respectively, so he estimates the next bear market will bottom in the second half of 2027, kicking off another strong bull run.

What comes ahead of that could be a bounce - maybe next summer, a big bounce and then another drop. "It's going to be the sequence of basically confusing a lot of investors by doing the same thing it did from 2000 to 2002, "constantly going back and forth," he said.

And after things fall apart, the big tech stocks and big name stocks are likely to shine due to negative memories by investors. Instead he says look at winners from 2002 to 2007. "A lot of emerging markets, gold mining shares, commodity producers in general, and small and mid caps rather than the big ones."

The markets

Tech and S&P 500 futures (ES00) (NQ00) are seeing some gains, while Dow futures are flat (YM00). The yield on the 10-year Treasury hit a fresh seven-month high.

The buzz

In a shortened holiday session on Tuesday the NYSE and Nasdaq close at 1 p .m. Eastern, the bond market at 2 p.m. U.S. markets reopen on Thursday.

American Airlines shares (AAL )briefly fell in premarket after the carrier said on X it was grounding flights due to a technical issue that has apparently now cleared.

A Federal watchdog is suing a Rocket Companies (RKT) subsidiary, accusing it of kickbacks.

Bank and business groups such as the Bank Policy Institute and U.S. Chamber of Commerce, announced Tuesday that they're "filing litigation against the Federal Reserve, challenging the opaque aspects of the stress testing framework." A day earlier, the Fed floated big changes to bank stress tests.

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