Market meltdown could be the early warning sign of an economic crisis

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Last week’s market wipeout is symptomatic of a wider problem that could one day turn into something much more permanent.

Before last weekend’s disturbances, it was the Tottenham riots of 2011, and before that the Brixton and Toxteth rampages of the early 1980s.Each time it happens, there is a groundswell of worthy soul-searching as to the underlying causes, from heavy-handed policing in the 1980s through to, in the most recent case, the surge in asylum seekers.

The comparison in this regard is with “Black Monday” back in 1987, when the correction in stock markets was neither caused by developments in the real economy, nor had much impact on them.Tremors such as these are on the other hand rarely without any significance at all, and in this case point to some fairly obvious fault lines that threaten much greater destruction down the line.

Not far behind are Microsoft, Nvidia, Alphabet, Amazon and Meta. Even Tesla, which despite the anticipation around the much-delayed launch of the company’s Robotaxi autonomous vehicle, is in essence just a car company, is worth £500 billion. Inevitably, these expectations will not be met. Implementation struggles to deliver, excitement wanes, and many of the early adopters fail. Much of the gain is then wiped out as sentiment slumps into a “trough of disillusionment”.

The second major fault line is partially connected, in that the easy money of recent years has been very much part of the frenzied pursuit of the “magnificent seven” technology plays.

 

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