(Bloomberg) -- The years-long climb in US stocks is far from over — at least for now, according to Mark Spitznagel, chief investment officer and founder of Universa Investments.

For the year ahead, markets will remain in “the Goldilocks zone — falling inflation and rates, a slowing economy but not too slow, and sentiment flipping toward euphoria — accompanied by a continued ramp and final blow-off in equities,” Spitznagel wrote in a recent letter to investors. But, he added, “the greatest bubble in human history” is now in its final stages.

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Spitznagel, whose nearly 20-year-old hedge fund specializes in tail-risk hedging, or protecting investors’ portfolios from the next big blowup, said as long as the economy remains resilient, stocks will continue to climb — a view he’s held since late 2022. Market enthusiasm, he said in an interview, could drive the S&P 500 to 8,000, or even higher — before a dramatic reversal. The index traded near 6,800 at 10:23 a.m. Tuesday.

The worry is: if the Federal Reserve holds rates at current levels for an extended period, businesses will start to struggle to raise capital. While the economy appears resilient, monetary policy works on a delay and the US central bank is behind the curve by focusing on trailing indicators like inflation, according to Spitznagel.

“The Fed is on hold, the market will anticipate more easing to come as the economy gradually deteriorates,” he said. Against that backdrop stocks will climb in anticipation of more interest-rate cuts before making a rapid descent when the economy slows. “At some point the Fed won’t be able to do enough, which is exactly what happened in 2007 and 2008.”

Ultimately, the Fed may be forced to slash rates aggressively to stave off a recession as a slowing economy risks triggering a sharp market selloff amid stretched valuations. “The Fed is popping a bubble and there’s a lag effect to it,” he said.

Universa Investments, which counts author Nassim Taleb as distinguished scientist, has outperformed competing risk-mitigated portfolios at the total-portfolio level over every one, two and five years, and since its inception, according to the investor letter.

Recent market swings — driven by geopolitical risks, bond volatility and concerns over sustainability of the artificial intelligence trade — have been good for defensive strategies preparing for one-off shocks.

Still, critics of tail-risk funds question if they’re worth the cost, especially when the strategies can fail to keep pace when the stock market is continuously climbing.

But Spitznagel questions if after years of double-digit gains investors are prepared for a drawdown of 80% or more.

“You have to be positioned for extreme environments that we think can happen all in the same year, potentially,” he said.

Spitznagel is skeptical that safe havens like gold, which has soared about 70% in the past 12 months, can provide protection in a broad-based selloff. He’s also critical of diversifying strategies.

“Be careful not to get squeezed in at the high, and squeezed out at the low,” he said. “Pundits who were bearish three years ago and turning bullish now need to be ignored at all cost.”

(Updates with Tuesday’s trading in third paragraph.)

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