Hedge fund CIO predicts: After this market rally peaks, interest rates will return to zero, and the Federal Reserve's balance sheet may expand significantly again.

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The Nasdaq Index in the US stock market has set a new historical high for 13 consecutive trading days, and the market seems immune to any negative news. However, one hedge fund Chief Investment Officer has remained clear-headed during this surge — he believes the current bull market is brewing a "generational level blow-off top," after which interest rates will return to zero or even negative, and the Fed’s balance sheet will expand significantly.

Eric Peters, Chief Investment Officer of One River Asset Management, latest prediction, in the next three to six months, the S&P 500 Index may see a 35% to 40% surge, driven by AI infrastructure construction, continuous inflow of foreign capital and the advantage of US energy exports.

He also warns, once the market peaks, it will face sustained selling pressure from the baby boomer generation, and the impact of AI technology on ordinary workers may become the "fatal blow" for the next bear market.

Nasdaq repeatedly hits new highs, market "immune" to bad news

The Nasdaq Index closed at a historic high this week, rising for 13 consecutive trading days. During this period, the market underwent Trump's military action against Iran, Congressional scandals, and public friction between the President and Fed Chair, none of which interrupted the rally.

During times of market panic, Peters previously sold a large number of S&P 500 put options; as these options expired and returned to zero, he said he would change strategies and start buying put options. His judgment is: the market is now in a "blow-off top" phase, the rally will accelerate parabolically – "getting steeper and steeper, until gravity takes over."

From a macro perspective, the continued expansion of the US federal fiscal deficit provides important support. The deficit is expected to reach $1.9 trillion in 2026, about 5.8% of GDP, with some forecasts even as high as 7%. At the same time, the size of US money market funds has risen to $7.6 trillion, a substantial increase from $2.7 trillion a decade ago; bank deposits are about $19 trillion, nearly double that of $9.5 trillion in 2016. A large amount of money is parked in low-yield safe assets, constituting potential ammunition for entering the market.

"Blow-off top" logic: AI, energy, and foreign capital triple drivers

Peters' optimistic view of this rally is based on three mutually reinforcing logics.

First, the reality of AI infrastructure construction. He believes there is genuine demand for building data centers and infrastructure related to AI, not just speculative storytelling, and this will continually support earnings expectations of related sectors.

Second, the strategic bonus of US energy exports. As the situation in the Strait of Hormuz changes, global energy buyers are forced to turn to US supply — "they have no other choice." He expects this will significantly boost US GDP numbers, "to absurdly high levels."

Third, the continuous inflow of foreign capital. The investment commitments made by Saudi Arabia and other countries during the Trump administration are seen by Peters as substantial capital inflows that will further push up US asset valuations.

Against this backdrop, he believes market sentiment will shift from the current general pessimism and under-allocation to being driven by FOMO (fear of missing out) in chasing gains. "Bob is retiring next month, so why is he still buying Nvidia? Because it keeps going up and he has cash." In his view, this psychological mechanism is a typical feature of the blow-off top.

Asset allocation: heavy stocks and gold, also positioning in Treasuries

On the operational level, Peters says he is currently "extremely overweight stocks, recklessly long gold and silver," and is also buying US Treasury bonds — the logic is to position early for the next phase of zero interest rates.

Veteran market players have a more narrative-driven allocation sequence: first buy precious metals, then buy guns, "because historically, whenever people hold too much gold, they always do this." Although this description carries personal style, it reflects some professional investors’ deep concerns about geopolitical risks and the stability of the monetary system.

Peters believes the Fed essentially only has two tools: cutting rates and printing money. He never cares who is running the Fed, because the outcome is certain — "interest rates will return to zero, or even negative, and the Fed’s balance sheet will grow massively."

Warning: Generational blow-off top followed by bear market risks not to be ignored

Despite his extreme short-term optimism, Peters remains clear-headed about the end of the cycle. Using the 1989 Japanese stock market bubble as a reference, he characterizes the current market as a "generational-level blow-off top."

He notes, when "the shovels for AI infrastructure actually start digging," this trading theme will come to an end, and the market will seek the next narrative. On the other side of the bull market, the baby boomer generation will be a sustained selling force — "they hold too many stocks and big houses, while there aren’t enough young people to take over, unless prices drop sharply."

Deeper risks come from AI technology itself. "AI is like splitting the atom; it’s an incredible technology, but it could be disastrous for ordinary people." He says this may become the "death blow" of the next bear market. He also emphasizes that the characteristic of bear markets is precisely that "there’s always something you didn't foresee."

Risk Warning and DisclaimerThe market has risks, and investment requires caution. This article does not constitute individual investment advice and does not take into account the special investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific situation. Investment based on this is at your own risk. ```