Stuck market

The Economist observed that the US stock market has seen a surge lately, fueled by enthusiasm around artificial intelligence.

- BOO CHANCO

But Gita Gopinath, former IMF chief economist, wrote in The Economist that “investors have good reasons to worry that the current rally may be setting the stage for another painful market correction. The consequences of such a crash, however, could be far more severe and global in scope than those felt a quarter of a century ago.”

Gopinath estimates that “a market correction of the same magnitude as the dotcom crash could wipe out over $20 trillion in wealth for American households, equivalent to roughly 70 percent of American GDP in 2024. This is several times larger than the losses incurred during the crash of the early 2000s.”

Then, there is JPMorgan Chase CEO Jamie Dimon who cautioned that despite the stock market's strong performance, there may be masked issues that could spark a downturn like the 2008 financial crisis. He warned that there may be “cockroaches” in the US economy that could spell total meltdown.

There are trade tensions (especially US-China), political risks and inflation surprises that are contributing to current bouts of volatility. Another possible “cockroach” is Trump himself with his disruptive decisions.

What does all that mean to the rest of the world?

Gopinath points out in The Economist that the world has become dangerously dependent on American stocks.

“At the heart of this concern is the sheer scale of exposure, both domestic and international, to American equities... This growing interconnectedness means that any sharp downturn in American markets will reverberate around the world.”

So, why should Filipinos worry?

For one thing, when the US economy catches a cold, the rest of the world goes down with pneumonia. And our equities market has long been nursing a sort of long covid affliction.