The greatest risk to the world economy in ’26-27? The market crash says strategist

Investing.com -- The greatest risk to the world economy in 2026–27 may come not from a cooling cycle or a policy mistake, but from the markets themselves, according to BCA Research’s Dhaval Joshi.

Joshi, chief strategist at BCA, argues that the central vulnerability sits with a narrow cohort of older Americans whose spending has been powering demand since the pandemic. If equity markets stumble, he warns, that marginal spending could evaporate and tip the economy into contraction.

“The greater risk to the world economy in 2026-27 is not that a recession triggers a market crash, but that a market crash triggers a recession,” he wrote in a Thursday report.

The logic rests on the roughly 2.5 million “excess American retirees” who left the workforce after COVID and have been sustaining activity by drawing on rising portfolio wealth.

They can afford to stay retired only as long as the boom in asset prices continues. Their consumption has helped hold unemployment down and avert a demand-led downturn, but it has also kept inflation firm around 3%.

These excess retirees have effectively kept the labor market “supply-constrained,” Joshi said, offsetting what would otherwise resemble a roughly 2.5 million rise in unemployment — the kind of marginal shift that typically tips the economy into recession.

The strategist warns that the system’s fragility is increasing as market leadership narrows. He notes that the world index is two-thirds concentrated in the U.S., the U.S. market is 40% concentrated in its top ten stocks, and those stocks’ performance hinges on what he calls a “tenuous narrative” that gen-AI gains will accrue almost entirely to a handful of incumbents.

“Suffice to say, the tenuous narrative will collapse, the only question is when,” he said.

Joshi urges investors to focus less on potential catalysts and more on the underlying vulnerability of the trend. His complexity indicators show that global and U.S. equity uptrends are fragile on the 130-day horizon but remain intact over 260 days.

“This warrants a weighting to stocks at one notch below the default overweight, at neutral,” he continued.

In the bond space, BCA remains underweight on duration until drawdown risks rise further.

It also highlighted a new tactical trade: overweighting Switzerland’s SMI against the U.K.’s FTSE 100. The latter’s rally, powered by commodities and a softer pound, has become increasingly fragile on longer horizons, while Swiss equities screen as more “anti-fragile.”