However, one of Wall Street’s most experienced strategists has suggested that while a major selloff is inevitable, the risk to diversified retirement accounts is far more contained. Michael Cembalest, chairman of market and investment strategy for J.P. Morgan Asset and Wealth Management, explained his measured view to Galloway and Elson, acknowledging the current market’s extraordinary valuations while expressing skepticism about a catastrophic 40% drop.

Cembalest referred to the financial figure known as “Dr. Doom” to summon up a picture of stock-market bears issuing warnings when the market begins to correct: “As soon as any asset falls by 10%, Nouriel Roubini and the rest of the [bearish] people come out of the woodwork and say, ‘Okay, this is it, this is the big one. Everything’s going to go down from here.’”

Fortune has covered similar warnings amid questions about an AI bubble, including those from self-described “perma-bear” Albert Edwards and the mega-popular Irish financial podcaster David McWilliams. But a correction doesn’t necessarily always pan out in a big crash, Cembalest pointed out.

He also weighed in on the bearish stance of Damodaran, who warned that everything was overvalued and that if the Magnificent 10 went down by 40%, the panic would ripple through the entire market. Damodaran even went so far as to suggest that investors should move large portions of their portfolios into cash or collectibles. With no disrespect intended, Cembalest said there’s a difference between what a finance professor sees and what actual market participants see.

“You know, professors are basically running fantasy baseball teams by coming out intermittently and telling you what their trades are. It’s not real money. It’s not real life,” he quipped.

While the J.P. Morgan analyst agreed that the market relies heavily on extraordinary expectations, Cembalest argued that the current AI build-out lacks the systemic risk present in previous bubbles.

Why a 40% crash is unlikely

In his view, the crucial difference lies in financing: Previous capital spending booms, such as in fiber-optics or gas turbines, were primarily financed with debt, making them vulnerable to a sudden, systemic “unplug” by the debt markets. Today, the massive capital spending fueling the AI revolution is largely being financed with internally generated cash flow, not debt, with the notable exception of Oracle, he said.

“That simply means it can go on for longer before it gets unplugged by the debt markets,” Cembalest noted, explaining that this dynamic “doesn’t relieve you of the ultimate need for there to be substantial profit generation,” but it does mitigate the risk of a sudden seizure in the financial system. This reduced systemic debt exposure suggests that the market will not “unravel into the big 40% corrections that we had in 2009” and then again in 2001, he added.

Instead of a 40% collapse, Cembalest’s base case for the next few years includes a likely and more modest correction. He stated that when assets are trading at 20- to 25-year highs, they usually correct, but by smaller percentages. “It would be kind of shocking if you didn’t have some kind of profit-taking correction in 2026 at some point on the order of 10% to 15%.”

What it means for the average investor

For the average investor or 401(k) participant, Cembalest said that the scale of the drawdown will require preparation but not panic. He noted that his firm’s normal balanced and conservative portfolios are already highly defensive, holding 30% to 40% in a combination of cash, cash equivalents, gold, diversified hedge funds, and short duration assets.

The so-called bond king Jeffrey Gundlach, founder and CEO of DoubleLine Capital, told Galloway and Elson in a previous episode that gold was his “number one best idea for the year” and advocated for it to represent 25% of a portfolio—with the percentage dropping to 15% after it seemed to plateau around $4,000 per ounce.

Individual investors can apply similar defensive strategies. Rather than drastically changing their allocation of funds, Cembalest said he was advising clients to switch from a growth portfolio to a more conservative or balanced one, aligning their risk tolerance with current high valuations.

Furthermore, individual investors have the flexibility to act quickly during market turmoil, which institutional funds often lack. Cembalest recommends that investors begin accumulating “dry powder” now to take advantage of opportunities. Since corrections often tend to be “very V-shaped,” with a rapid, violent unwinding of risk followed by a quick snapback, having spare cash available allows investors to buy assets when they temporarily sell off.

While Cembalest acknowledged the immense capital spending in AI—equivalent to the combined cost of the Manhattan Project, the Hoover Dam, and the Apollo program, relative to GDP—he concluded that a 12% to 15% correction scenario is currently more likely than the 40% worst-case outcome.

And yet, as Elson noted in the podcast’s introduction, this kind of correction would still be significant to millions of investors and the entire economy: Cembalest’s base-case scenario is “kind of a big deal in and of itself.”