AI Hype and Weakening Economy May Set the Stage for a Stock Pullback
Wall Street rang up another milestone Thursday, with the Dow +1.36%, S&P 500 +0.85%, and Nasdaq +0.72% all closing at record highs. Yet, history suggests that peaks often arrive just when optimism runs hottest.
Peter Berezin, chief global strategist at BCA Research, warns that crashes rarely have a single trigger: “To ask what will trigger the next stock market crash is akin to asking which snowflake will trigger the avalanche.” Instead, it’s usually a convergence of vulnerabilities.
- 1987 Black Monday combined a swelling trade deficit, a sliding dollar, spiking yields, and tax legislation fears.
- 1998’s swoon was fueled not just by LTCM’s collapse, but also Asia’s turmoil and Russia’s default.
- The dot-com bust was more than just overvaluation; Fed hikes and a flood of new stock issuance added pressure.
- 2022’s selloff showed markets can ignore risks for a while before inflation and Fed tightening sink in.
The lesson: downturns are rarely simple, but when the economy holds up, markets recover faster. Unfortunately, Berezin says today’s supports — economic resilience and AI mania — look fragile.
- Labor market weakness: A hidden rise in unemployment suggests cracks beneath the surface.
- Housing slowdown: Increasingly fragile, with demand distorted by tariff-driven buying.
- AI at risk: While a long-term growth theme, hyperscalers like Meta, Google, Microsoft, Amazon, and Oracle remain vulnerable to ad revenue declines and cash flow pressures. Stock prices, which now make up a third of the S&P 500, could falter well before AI capex peaks in 2026.
“If consumer spending slows alongside falling equity wealth, the pullback could deepen,” Berezin cautions.
His bottom line: no one can time the exact top, but today’s mix of faltering growth and fading AI euphoria is reason enough to “keep a finger near the eject button.”
