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- According to new research by a Finnish economist, the US stock market could collapse by 2050.
- This is because US stock growth is volatile, and a crash is bound to happen in the coming decades.
- The study’s findings echo recent commentary from Wall Street veterans, who are warning of an epic wipeout.
An epic stock market collapse could occur in the next few decades, according to a Finnish economics professor and researcher at the University of Vaasa who is sounding the alarm over an “Armageddon” financial crisis.
Recently “The Armageddon of the Financial Markets: Are the US Equity Markets Finally Going to Collapse?” In a paper titled, Klaus Grosby pointed to extraordinary events that have shaken markets over the past decade, including the 2008 financial crisis, the pandemic and Russia. Ukraine war, which shook global financial markets since last year.
Those tensions have had a “dramatic” impact on the world economy, Grosby said, disrupting supply chains and causing high inflation that central bankers are still trying to control. So far in the US, the Fed has raised rates by 450 basis-points to fight inflation. Economists warn that when combined with the ballooning level of US debt, central bankers could be forced to choose between relieving the debt burden or stamping out higher prices, which could mean a severe recession. Recession and stock market crash may be on the horizon.
Grosby’s paper re-examines previous studies of stock market crashes to determine whether another disaster is coming for the US market. In particular, he cited a 2001 paper that concluded that the US stock market was growing at such a rate that it was heading towards a “finite-time singularity” – meaning that growth was unsustainable. is, and will eventually lead to an “apocalyptic collapse” in the stock.
The 2001 paper extracted 1790–1999 data from the Dow Jones 30 Index. Using a model that detects exponential-to-exponential growth to identify stock market bubbles, the researchers concluded that the US equity market was headed for a collapse in 2052.
Grosby tinkered with the same model, using stock market data from the S&P 500 over the past twenty years, that would account for the dot-com bust, the 2008 crisis, as well as the pandemic-induced recession of 2020, which All due to a sharp decline in the stock market. They also re-calibrated the model, as other analyzes suggest that the amount of time it takes for a stock market crash to occur may be overestimated. This may be due to the “extreme monetary policies” of central banks in previous years, which Grosby speculates may have accelerated the onset of the financial crisis. He compared the coming crash with the events of 1987 and 1929.
“The stock market crashes of October 1987 and October 1929, which were examined in the present research as robustness checks, can serve as a guide to how such a collapse might occur: for both events, the market Participants saw an extreme reduction in market capitalization in a very short period of time,” warned Grosby.
His findings echo warnings from prominent Wall Street commentators, who say the stock market is at risk of disaster. Renowned investor Jeremy Grantham warned investors last week about a “stomach-churning” crash that could wipe 50% off the S&P 500. Ray Dalio, the former CEO of Bridgewater, has repeatedly warned that financial markets are headed for a new world order — and after the Fed’s latest rate hike, interest rates so high could easily trigger a severe recession and stocks could slide 20%. can lead to decline.
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Source: markets.businessinsider.com
