Gundlach, Zulauf Warn AI Rally Nears End, Forecast 30-50% Market Crash by Q3 2026

Jeffrey Gundlach of DoubleLine and Swiss hedge fund manager Felix Zulauf warned on June 22, 2026, that the AI-driven market rally is ending, predicting a 30-50% bear market. They forecast a full-scale downturn, driven by recession and valuation contraction, potentially beginning as early as Q3 2026 or by Q1 2027. Zulauf cited cloud service giants' capital expenditure rising from 10% to 30% of revenue and 200-300% memory chip price increases. He noted some large tech firms, including Oracle (ORCL), show negative free cash flow, signaling a cooling AI investment cycle. Gundlach added that the S&P 500's top ten AI-related companies now comprise 41% of its market cap, a concentration seen in historical market tops. Gundlach also warned of structural issues in US long-term bonds, with annual interest expenses nearing $1.4 trillion and a $2 trillion annual deficit. This could prevent significant yield drops in a recession, potentially leading to debt restructuring. Both experts flagged the private credit market for inflated ratings, liquidity mismatches, and opaque accounting, drawing parallels to the 2005-2006 period.