"Wall Street Halloween Fears: Dangerous Scenarios in the Economy"

Halloween Atmosphere on Wall Street and Investor Fears

As Halloween decorations increase across the United States, concerning signals for investors are also becoming apparent. The approaching fourth quarter brings important events that lead to unease in the markets. Three dangerous scenarios warrant investor attention.

Fear Scenario: Are AI Investments a Bubble?

Firstly, there is a view that AI investments may potentially be in a bubble. While investors generally tend to ignore this situation, the sudden surge in Advanced Micro Devices (AMD) shares following agreements made with OpenAI highlights such a risk. However, companies like Nvidia create uncertainties regarding profitability with such cyclical agreements with their clients.

Financial Credit Stress and Consumer Weakness

Increased default rates among low-income consumers are another concern that worries the financial markets. Bad signals from companies like CarMax create fear among investors. As income growth slows, it becomes difficult for consumers to adapt to rising prices. This situation poses the risk of a “small-scale credit crisis” for some financial institutions.

Weakening Employment Market and Economic Growth

The weakness in the US employment market is putting pressure on economic growth. While investors expect an unemployment rate of around 4.5-4.6%, it should be noted that fluctuations in employment have historically tended to persist. Negative economic scenarios could lead to declines of up to 30% in the S&P 500.

Conclusion: What Happens if Threats Combine?

As pointed out by Essaye, the simultaneous occurrence of these three risks can create a 'horror movie' scenario for investors. The bursting of the AI bubble, declining consumer spending, and general economic stagnation could result in significant losses in the S&P 500. The experience of the past dot-com bubble shows that it can take years to recover from stock market crashes.