Is the Everything Bubble bursting and is another Great Depression looming?
Global stock markets seem to be at sea with no sense of direction or grip.
From Dow Jones to Japan's Nikkei to India's Sensex and Nifty, the gale-force winds are knocking off billions of wealth per hour. US investors have seen a record $4 trillion wiped off, while India suffered an erosion of $1 trillion in market value in the past four months.
A tidal wave of bad news such as a looming recession in the US and Europe, a likely global trade tariff war, a potential US government shutdown, concerns about debt sustainability, US' policy shifts on the Russia-Ukraine war that have seen pausing of financial aid for Ukraine and so on, are building an undercurrent of anxiety among investors.
It seems, that misfortune and bad luck has been plucked out of hell and set down among us. And as if mocked by the market gods, the US' benchmark S&P 500 has been in the red losing about 10%, India's leading indices -- Nifty50 and Sensex -- are nosing earthward, falling 14.3% and 13.6%, respectively from their previous peaks. Likewise, Japan's benchmark Nikkei 225 plunged over 7%, followed by South Korea's KOSPI, Taiwan's TAIEX and Hong Kong's Hang Seng Index all of which have collapsed in rout and ruin, erasing most of the gains made since the start of the year or perhaps even before.
Everyone agrees that some amount of correction was indeed needed. However, this correction is stretching beyond what typical market adjustments take, sparking fears that the Everything Bubble is bursting and that the ongoing crash could surpass the one seen in 1929, which led to the Great Depression, according to author and investor Robert Kiyosaki of Rich Dad, Poor Dad fame.
A stock market correction refers to a decline of at least 10% or more from recent highs, often triggered by economic shifts, geopolitical events, or market overvaluation. While corrections can cause temporary panic, they are a natural part of market cycles and help adjust overvalued stocks, reset investor expectations.
Historically, such corrections last an average of three-four months, though the duration depends on various economic factors. Some corrections may take just weeks, while others last long, leading to prolonged bear markets.
But right now, the correction phase is unusually prolonged and intense, with markets looking like a lava lamp. Sensing danger, bulls have retreated to an island bunker, while others who were stuck on the manic-depressive trading ring are hanging on with a white-knuckle grip bracing the volley of volatile developments. If one day it's about tariff hikes, the next day it's the turn of retaliatory levies. Next, it could be fears of an economic downturn driving a stock market sell-off or changes including federal workforce cuts or the DOGE clampdown on spending that's dampening market sentiment.
In short, investors are caught between fires and even before the market can fully recover from one setback, there's another waiting to pop the bubble. These anti-matter-like events are blazing so thick and fast that its hard to know where markets are actually headed and if they'll regain their glorious heights ever.
Striking off some of the impressive gains seen in recent months, the S&P 500 has suffered declines in three of the last five months. Investors, who were once optimistic about US President Donald Trump's pro-growth agenda, have given up all gains recorded since the November 5 election. Clearly, market volatility is up under Trump 2.0, while bond yields tumbled as investors fled to safety in fear of higher prices, inflation, and disrupted supply chains.
As if all this wasn't enough, Trump further ignited sparks, refusing to rule out the possibility of a recession, rattling anxious investors.
According to Ventura, a key concern for the stock market is that if the US GDP growth rate falls below the Federal Reserve's interest rates, it could lead to a debt spiral. Currently, US government debt stands at $34.6 trillion, or 120% of the GDP.
"Another challenge lies in the fact that $12.6 trillion debt was issued post Covid at very low rates. Now with $3 trillion maturing in the current 2025, this will need to be rolled over at 4.3%, a rate that is significantly higher than when it was issued. The Fed faces a policy dilemma -- cutting rates could reignite inflation, while raising rates would escalate the interest burden on the national debt, making fiscal sustainability more challenging," it observed.
In fact, Japan experienced a similar predicament in 1972, when the Bank of Japan's interest rates and inflation outpaced GDP growth. This imbalance deteriorated its debt position, eventually pushing Japan's debt-to-GDP ratio beyond 100% during the 1998 Asian Financial Crisis. Japan's debt levels became unsustainable and it struggled to recover. By 2024, its debt-to-GDP ratio exceeded 250%, while GDP growth remained virtually stagnant.
Back home, things are looking rather bleak with markets extending persistent declines since September 2024. Foreign investors are exiting in truckloads, turning stock dumping into a global sport, while veteran investors are cautioning about looming trouble. For instance, ace investor Shankar Sharma believes that the Indian market was running on borrowed time. According to him, Indian bulls have a five-year shelf life, and that the Nifty 50 index could deliver zero returns over the next 4-5 years from its September highs.
Besides trade-war tensions, domestic factors such as poor corporate performance, high valuations, and foreign outflows sparked the market rout, which began like any other market adjustment, but slowly evolved into a persistent decline. The benchmark Nifty 50 share index, which tracks the country's top 50 publicly traded companies, is on its longest losing streak in 29 years, declining for five straight months.
But as the saying goes, every storm runs of rain and as can be seen, foreign investor selling has eased since February, suggesting that the market downturn may be nearing its end. This brings us to the question of when will the worst be behind us, if at all?
While there are no clear answers, Morgan Stanley predicts the Sensex to reach 105,000 points by December, 2025.
