Will the U.S. tech bubble trigger a global economic crisis in 2024?
2023 has been a tumultuous year, with events such as the pandemic, Russia's invasion of Ukraine, and the cost-of-living crisis having a huge impact on the world economy. Will the global economy emerge from the predicament in 2024, or will it fall deeper into a crisis? A report by France's Société Générale gives a shocking **: the bursting of the US tech bubble could be the biggest market "black swan" event in 2024, which will lead to a global recession.
What is the U.S. tech bubble? Why did it break?
The so-called U.S. technology bubble mainly refers to the excessively high stock prices of the "Big Seven" of U.S. technology, far exceeding their true value. The seven companies are Apple, Microsoft, Google, Amazon, Meta, Nvidia and Tesla, and together they account for one-third of the total market capitalization of the United States** and one-tenth of global GDP.
The performance of these companies, while excellent, is not enough to support their high valuations. Microsoft, for example, has seen its market capitalization increase from $1 trillion to $3 trillion from the end of 2019 to January 2024, but its revenue and profits have only increased by 68% and 84%. This means that Microsoft's price-to-earnings ratio has risen from 25x in 2019 to 43x in 2024, well above the S&P 500's 18x.
This inflated stock price is mainly due to the monetary and fiscal policies of the United States. In response to the impact of the new crown epidemic, the United States has printed a large amount of money and issued bonds, totaling more than $20 trillion, equivalent to the annual GDP of the United States. These inflows have pushed up tech stocks, creating a huge bubble.
If this bubble bursts, the consequences will be catastrophic. The collapse of U.S. technology stocks will trigger panic in global financial markets, leading to capital outflows, credit crunching, shrinking investment, and declining consumption, which will drag down global economic growth. At the same time, the success of U.S. technology stocks will also weaken U.S. innovation and competitiveness, and affect U.S. status and influence in the world.
Will the U.S. tech bubble burst in 2024?
This question is difficult to answer because it depends on a lot of uncertain factors. However, we can analyze the trigger points and risk factors that can lead to the bursting of the bubble.
On the one hand, the trend of the U.S. economy is an important factor. If there is a recession in the U.S. economy, then the revenues and profits of tech stocks will take a hit, market confidence will be hit, and investors will sell off the high valuations**, triggering the bursting of the bubble. At present, the U.S. economy is facing multiple pressures such as inflation, interest rates, fiscal deficits, debt, and deficits, and its growth prospects are not optimistic.
On the other hand, the global political and geopolitical situation is also a factor that cannot be ignored. In the event of major conflicts and crises, such as Russia's further aggression against Ukraine, the ** and technological war between China and the United States, the deterioration of the situation in the Middle East and the Korean Peninsula, etc., then global stability and security will be threatened, international cooperation and the multilateral order will be undermined, and the growth and development of the global economy will be hindered. These events will increase uncertainty and risk in the market, which may trigger turmoil and panic in the capital market, which will trigger the bursting of the bubble.
To sum up, the bursting of the U.S. tech bubble is a possible event and an event that has the potential to trigger a global economic crisis. We should not take it lightly or be blindly optimistic, but should keep a clear judgment and be prepared to deal with it. We should also learn from the lessons of the United States and avoid following the same wrong path, but instead adhere to the development of the real economy, strengthen investment in scientific and technological innovation, improve the resilience and competitiveness of the economy, and work towards achieving the Sustainable Development Goals.