This top investor had been warning of a sell-off. He says the pain likely isn’t over.

Bill Smead has long warned of a stock-market reckoning amid AI-driven investor euphoria. With the S&P 500 and Nasdaq 100 having fallen double digits in recent weeks, things may be starting to play out according to his forecast.

On Wednesday, the founder of Smead Capital Management said he was sticking with his downcast outlook, and said the decline would likely continue.

It’s a simple question of the mechanics of how the economy runs, he argued. With the Federal Reserve reluctant to stimulate the economy and Congress cutting back significantly on spending, liquidity in the economy needs to come from somewhere. That place is likely to be the stock market, he said.

“Liquidity, it’s created by selling stocks,” he told BI. “Unless something changes in the short run, that is the only source of liquidity because the Fed is not going to start cutting rates and the Trump administration is not going to stop cutting government spending.”

If the outsize selling does continue, Smead is worried about what it could mean for wealthy consumers, who drive much of the spending, and the broader economy. Consumer spending makes up about two-thirds of GDP.

“The consumer, because of the incredibly large portion of consumer spending that’s coming from the 60 to 80-year-old baby boomer group, is automatically damaged by what goes on in the stock market,” he said. “When stocks go down 10%, all of those people feeling flush are suddenly feeling less flush.”

Recession fears have risen over the last few weeks as President Donald Trump has placed tariffs on Canada, China, Mexico, and the European Union, creating uncertainty for businesses and sinking consumer sentiment. The economic worries come on top of a re-rating happening in the technology sector as cheap AI chatbots call into question the hefty investments being made in the industry.

Smead manages the Smead Value Fund (SMVLX) and is positioned away from the tech sector. The fund has had a rough 12 months, falling 8.5% while the S&P 500 has risen 9.3%. But Smead’s long-term track record is impressive, beating 96% of similar funds over a 15-year period, according to Morningstar data.

On Thursday, he published a note to clients that sought to ease concerns about recent underperformance.

“Investors who have come to us in the last three to four years are probably wondering if we’ve been here before. By here, we mean a stretch of significant underperformance relative to our benchmarks,” Smead wrote. “The answer is, yes.”

He continued: “Being value investors and contrarians frequently puts us at odds with popular securities and owning stocks, the prices of which are temporarily getting abused. We made very strong compounded returns from 1994-1998, but the tech bubble took over in 1998 and lasted for two more years.”

Smead also underperformed during the pandemic tech boom of 2020, but recovered in 2021, smashing the S&P 500 with 37% returns. He beat the index again in 2022, losing just 4.4% while the S&P was down about 20%.

According to Morningstar, his fund’s largest exposures are in the financials sector (22.86% weighting), consumer cyclical stocks (22.85% weighting), and the energy sector (21.95% weighting).

His top three holdings include Simon Property Group (SPG) at 6.41%, American Express (AXP) at 6.15%, and Macerich (MAC) at 5.97%.