Disconnect between US stock market and reality? Amid heated discussions about the "line of beheading," this investment guru predicts a 20% decline in the Dow Jones index by 2026.

According to the latest forecast by John Rogers, chairman and co-CEO of Ariel Investments, the US economy may fall into a small-scale economic recession before the end of the year, and the US stock market will also decline. He predicts that the Dow Jones Industrial Average index may significantly retrace by 20% approaching bear market territory, mainly because ordinary income consumers in the US will feel pressured by high living costs. While Wall Street giants are generally very bullish on the US stock market outlook for 2026, the forecast by veteran US fund manager Rogers stands out, especially as Wall Street giants such as Goldman Sachs, Morgan Stanley, and JPMorgan Chase are more positive about the Dow Jones Industrial Average, which tends to lean towards cyclical and blue-chip attributes in 2026. Rogers, speaking at the Chicago CEO Club annual outlook event, stated that the Dow Jones Industrial Average index (or Dow Jones index, Dow) may see a significant decline of 15% to 20% this year, meaning that one of the traditional cyclical indices, the Dow Jones index, may enter a bear market. He emphasized in interviews that although wealthy American consumers are living well, ordinary Americans are struggling to pay huge bills. The concept of the "kill line" has recently made its way to New York from the Chinese internet. Market veteran John Rogers, who has been in the US investment fund management field for many years, stated, "I expect that by the end of the year, we will enter a small-scale recession. Wealthy consumers will of course live very well, they will go on cruises, go to Las Vegas, spend money on various exciting things. But the situation faced by America's most ordinary consumers is really difficult." Rogers, a senior fund manager in the US mutual fund management industry, stated that the double-digit bull market growth trajectory seen in the US stock market over the past three years is "extremely unusual," and he emphasized that this bull market curve is increasingly disconnected from the reality of the US economy. He added that due to the unprecedented investment boom in artificial intelligence, the US stock market no longer represents the real economy, which has led him to be very concerned about the excessive concentration of large tech stocks such as NVIDIA, Microsoft, and Google. Rogers' view reflects the concerns of professional stock investors about the continued pressure on ordinary consumers possibly leading to greater macroeconomic fluctuations (including recession and major stock market declines). Rogers stated that he expects the 10-year US Treasury bond yield to slightly decrease by the end of the year, as the expectation of a recession will boost it, and the Federal Reserve will face new pressures to lower interest rates amid an economic downturn. Rogers' latest comments reflect his concern about the fragility of the US economy behind the phenomenon of the "kill line" - this concern aligns with his bearish judgment on the US stock market. The concept of the "kill line" was first used in the Chinese internet environment to describe the critical line of the financial situation of American ordinary families: when income and assets fall below a certain level, individuals or families may quickly fall into irreversible economic difficulties (such as being overwhelmed by medical bills, unemployment, or debt pressure). Rogers' emphasis on the "high living cost pressure faced by the most ordinary American consumers and its potential impact on the overall economy," aligns well with the metaphor of the "kill line" in the US. He believes that while wealthy consumer spending is good, the burden on ordinary people is heavy, and this consumption differentiation could drag down overall market demand, leading to an economic slowdown or even a small-scale economic recession, which could ultimately result in a significant decline in the stock market, especially in indices such as the Dow Jones that have a higher component of cyclical assets. This fundamental concern reflects the underlying vulnerability of the US economy behind the "kill line" on a macroeconomic level, rather than just a simple market, valuation, or technical adjustment. A sober voice outside of the optimistic sentiment on Wall Street Rogers' bearish outlook and prediction of an economic recession and a significant decline in the Dow Jones index stand in stark contrast to the general bullish stance of Wall Street strategists on the 2026 US stock market. Market surveys compiled by Bloomberg and other research institutions show that the vast majority of Wall Street strategists expect the S&P 500 index and the Dow Jones index to continue to rise in 2026, with most forecasts maintaining strong growth for the year and even achieving consecutive years of growth. They also hold a consistent bullish attitude towards cyclical stocks and sectors sensitive to the economy, especially favoring cyclical sectors much more than the investment stance on the seven major tech giants. In this context, Rogers' views imply that he places more emphasis on consumption differentiation, a weak real economy, and the possibility of economic data turning weaker in his fundamental judgment, leading to a more cautious or bearish attitude towards the stock market, especially towards traditional cyclical indices such as the Dow Jones Industrial Average, reminding market participants to pay attention to the significant risk exposure of "underlying economic imbalances behind the apparent growth." This stance suggests a divergence in market risk preferences: even as most sell-side market strategists bet on the market continuing to rise and rotating towards cyclical stocks, there are still some steadfast fundamental concerns who believe that this consensus is "overly optimistic" and may underestimate the pressure on consumer spending by ordinary people, as well as the negative impacts of the US long-term bond market and interest rate paths on the economy. Rogers' assessment does not necessarily represent the mainstream market expectations, but in the midst of widespread bullish sentiment, his views provide a more defensive macro perspective, suggesting that market gains may rely more on valuation expansion and cyclical asset rotation than on robust economic growth. This highlights the need to remain vigilant about the risk of "reversal risk after the contraction of risk premiums" on an investment strategy level. KPMG's chief economist Diane Swonk also predicts a downward trajectory for the Dow On the same occasion, Diane Swonk, chief economist of KPMG, predicted that the Federal Reserve will cut interest rates three times this year, far above the median expectation of 2026 shown on the FOMC dot plot chart that only one rate cut is expected by Fed officials. Although she predicts a significant decline in the Dow Jones index to 43,000 points by the end of the year from the current level of nearly 49,200 points, she believes that the US will avoid falling into a recession. She stated that inflation may persist in the long term, in part because some extremely wealthy Americans will receive large tax refunds early in the year, and several states have raised the minimum wage. However, with the continuing deterioration of geopolitical tensions and the US economy showing signs of fatigue, investors will continue to allocate funds towards gold as a major safe haven bet. John Rogers, chairman and co-CEO of Ariel Investments, stated that he still likes small-cap stocks, those of small companies, and mentioned that Smucker Company may be one of the stocks that performs well during difficult economic times. Ariel Investments, headquartered in Chicago, was founded in 1983. The long-standing investment company has focused on selling mutual funds and other important investment tools for a long time, and is dedicated to long-term value investing.