Barring asteroid impacts, disease, natural disaster, war — Why would the S&P 500 crash to 700 before 2023, and remain under 700 until 2030?

Question

Many famous wealthy investors are predicting a stock market crash. On 25 March 2021, Ray Dalio: Current bubble 'halfway' to 2000 and 1929

"By our measures, the bubble is not what it was in 2000 and not what it was in 1929," he says. "But it's kind of like halfway there."

In Sept. 2021, Jim Rogers

“The next bear market will be the worst in my lifetime,” he predicted in an interview with financial advisory firm Wealthion last month.

On 20 Oct. 2020, billionaire 'Bond King' Jeff Gundlach said stocks will crash, predicted a weaker dollar, and questioned bitcoin in a recent interview.

In a RealVision interview filmed and released in early October, the billionaire "Bond King" Jeff Gundlach said stocks would crash within 18 months, predicted that the US dollar would tumble in the long run, and voiced his doubts about bitcoin.

On 21 Nov 2021, Harry Dent: Stock Market Crash Coming in Early 2022; ‘Economy Is Dead’.

“Stocks are on their last legs,” he declares, predicting that the market will plummet 80%.

Indeed, in the first two to three months of 2022, it will drop more than 50%, Dent, a Harvard Business School MBA, foresees.

The S&P 500 closed at approximately 4700 on 7 Dec 2021. What would plummet the Standard and Poor's 500 stock equity index to, and curb it below, 700 until 2025? The nose dive to 700 must happen by 1 Jan 2023. Then S&P 500 must stay below 700 until 1 Jan 2030.

Here are the usual disclaimers. No Deux Ex Machina!!! The causes must be realistic and justified.

NO asteroid impacts whatsoever — don't just allege an astronomical impact event or another Cretaceous–Paleogene extinction event.

NO wars or anthropogenic disasters whatsoever — rule out second US Civil War or third World War III.

NO unrealistic Acts of God or Natural Disasters.

NO impracticable -demics, or diseases. For example, don't just assume some SARS-CoV-2 virus variant will unexpectedly become more contagious and lethal and painful. Scientific evidence is required.

Answer 1

The US has just announced a diplomatic boycott of the Beijing Winter Games for 2022. Other countries are doing likewise. China is incensed and retaliates.

In addition to imposing its own diplomatic boycotts on countries that end up boycotting the games, China retaliates further and begins trade boycotts or additional trade boycotts with those countries with which it already has trade issues.

China has just recently provided an initial soft landing for the Evergrande debt default. China lets the company collapse forcing the global financial markets to crash. China also lets the Kaisa Group fail as well, again affect bond holders.

Additionally, China bans the sale of rare earth elements to other countries. Given China supplies 70 percent of the world market, this deepens the global financial situation.

The global computer chip shortage does not improve, or worsens, forcing companies to limit or cease production, further adversely affecting the global economy and stock investors.

Furthermore, China announces measures to cut internal air pollution and bring forward it reduction of green house gas emissions. One result of this is all photovoltaic solar panels China produces are no longer exported but used internally to create solar farms and community solar energy hubs.

To ensure smooth integration of renewable energy sources to the national grid, China construct batteries farms. This results in China banning the export of lithium batteries. Elon Musk and Tesla and Volkswagen are in a crisis situation. Their stock valuations drop significantly, as do those of all other electric vehicle manufacturers.

In effect, during 2022, the world is plunged into economic collapse that is worse than the Great Depression of the 1930s.

Answer 2

Confidence is completely lost

An S&P 700 would mean >80% loss, it would set us back about 25 years. It indicates start of grave depression, panic, and major and structural damage to our economy. People have sold their shares, because they don't have any confidence the issues can be solved.

Why does it persist ? because it cannot be solved, more damage is unavoidable.

Like this year but worse

My crystal ball: forecast for the summer of 2022 will be.. exceptionally hot, in certain northern places where it is not supposed to be hot, like this year.. but worse.

Greenland's summer of 2022

In June, summer on the Northern hemisphere already indicated the issues to come. Temperature records everywhere, like last year. Weather patterns involving multiple Omega-jetstream patterns, causing persistent extreme heat over Greenland, Canada and Russia. For months. Heat records are smashed by 5-10 degrees again, yielding months of hot weather (105F+, 40 Celsius) over Greenland.

Satellite images taken in September show massive ice loss.

Sea level issues

By October 2022, scientist find ca 5% of the Greenland ice simply vaporized and is now raining down on GB and Ireland, who suffer disastrous floods as a result of that. Of the Greenland ice, 20% ended up as water in the North Sea. When all of Greenland's ice would melt, there would be a global sea level rising of about 6 meters, or 20 feet, until now projected in 500 years or so.

Now we get 1.5 meters in a few months. In the winter of 2022, major trouble started for the Dutch coastal defense. Large parts of Florida and Louisiana have been evacuated permanently. The poor Bangladeshi mostly drowned.. Japan experiences issues with Fukushima again, but this time there is no way to isolate waste water, or repair facilities. Dependent on the tide, the nuclear facility is under water, for most of the day. Food production along the east coast of Japan has collapsed.

Financial panic

Feeling with the general public: they messed up. They could not solve Covid, they can't solve this. Instead of having these sea level troubles by the year 2300, like our politicians promised us, we experience them immediately in 2022, tenfold !!

By December, the stock exchange and also the banks are flooded with anxious people, who had put all their savings in shares and fake money, after Covid.. and now they demand gold and silver. Several large banks have fallen, there was no reserve to save them, this time. Pension funds break. By January 2023, panic has spread over all stock exchanges everywhere. S&P is under 700.. and going down..

Answer 3

Some basic political reforms

Very harsh measures (but politics, not war) would have the effect you describe on stock values. But despite the smiles she brings to so many faces, Madame Guillotine isn't really needed for this one. With less harsh (but fundamental) reform, the nature of stock ownership could change, and with it, the value of stock ownership.

For example, we could implement the following text: "Employees in enterprises and public institutions exercise democratic rights. Enterprises and public institutions practice a system of democratic management whose basic form is employees congresses, so that workers and staff can play an active role in decision-making on important matters concerning their immediate interests. They are implementing a system of employees serving as board directors and board supervisors..."

If such text were brought truly to fruition, the promises of power and dividends from stock ownership, or any means to wrack excessive profits out of the actual work force, might rapidly evaporate. At first, the shares might hold their value as pure speculation, like NFTs. However, at some point there would likely be an abrupt reevaluation of their value, bringing about the numbers you describe.

Response: despite @jdunlop's comment below, I think the chief criticism of this answer is that the loss of value would not be sufficient to meet the scenario. Though it depends on changes in value of the S&P before 2023, I assume we're talking roughly a 6/7 loss of value. That sort of decrease implies a significant "default", in some sense, on the net asset value of the companies. Because any political change could be undone, there would be some vulture funds holding onto the shares in the hope of one day getting the original monetary value back.

More to the point, the text above is quoted from a recent document from China, which has shown remarkable willingness to crack down on large companies lately, causing firms to delist from NYSE; they even are said to have suppressed Jack Ma, one of the world's richest men. Nonetheless, shares in Chinese companies have fallen incrementally - nowhere near the level required for this scenario. Nonetheless, I think it seems plausible that the stock value of those companies could change that much given just some combination of political conditions.

Answer 4

Revaluation.

https://www.latimes.com/archives/la-xpm-1988-02-10-fi-28224-story.html

Italy Seeks to Revalue Lira, Putting It on Par With Other Key Currencies BY WILLIAM D. MONTALBANO FEB. 10, 1988 12 AM PT

ROME — A 40-year-old dream of bringing arithmetical simplicity to the Italian lira is being revived here as a celebration of national economic maturity. The government of Prime Minister Giovanni Goria proposes to remove three awkward zeroes from the lira... Under the plan, which requires parliamentary approval and is at least a year from impl ementation, one so-called heavy lira would replace 1,000 current lire.

Stocks are revalued across the board with the result that the S&P is now 700. There are reasons to do this, like the reasons Italy had for revaluing the lira. A stock is an artificial construct and can be valued in any way that makes sense. But it is making me sleepy just trying to type about it. The revaluation facilitates transactions of the sort that they want to facilitate. No-one loses money. It does not make for an interesting fiction in the least. It is not unlikely.

Answer 5

I have some good news and some bad news.

Bad for America, good for the rest of the world.

If you are limiting the crash to just the S&P 500, please recall that this is basically an index of American greenback-denominated stock. Money is money, and it pursues the highest return. If there is a stock market that is offering higher returns, then the money will flow out of the S&P and into this other market. There are many other stock markets besides the American stock market.

Consider what happens if Covid mutates into a more deadly form, hits America the hardest, and America takes just as disastrous and divisive a stand as it took against the first Covid assault. American corporate firms are heavily hit. Top executives drop like flies. There is a corporate leadership vacuum, and American S&P corporations fold like a deck of cards. Imagine Bezos, Musk, Zuckerberg, and other chief executives all dying within months of each other.

Money would flee the S&P, and seek out safer havens. If, say, Europe or Asia were to keep the pandemic under control, and their corporations withstood the disease, the money would all flow to European stock markets.

Now add climate change and climate disasters to the mix. America is already experiencing supply chain disruptions, imagine if all transportation shut down. A gasoline shortage, trucks off the road, a few major rail lines destroyed in key places by landslides and such, the bankruptcy of a few major airlines, and an American populist runs again for President for the 2024 elections and looks like he might win, and control of Congress and Senate becoming stalemated in a tie in 2022. Nothing gets passed, spending bills are left hanging, and the American government is left stagnated and completely impotent.

Now add in an assassination of the American President, a successful riot against the American House, killing a huge swath of legislators. This time, they come with guns and ammo, and it is between the supporters of the assassinated President and the side that assassinated the president. Consider if Pence HAD been assassinated.

Now, add in the successful assassination of the Pope, and it is speculatively falsely traced back to an American Antifa terrorist organization because the American Supreme Court took an extreme right path on abortion.

A perfect storm for the corporations listed in the S&P. Of course, the S&P will eventually be revised, and more global companies will replace those currently in the index. By 2030, the index will be reconstituted as European/Asian, denominated in Euro or Renminbi, and thus rise once again.

The sad part is, absolutely everything in this scenario is plausible, because it has happened, albeit less severely and in individual cases.

TL:DR

It will not be an isolated, single event, but a juxtaposition of many, many converging scenarios.

Oh, and the American Civil War never DID end, it just paused in a truce.

Answer 6

Warren Buffet dies so that nobody gives the signal that it is time to start buying again, like he did in and after 2008. Now everybody is confused during the next minor hiccup. Trust in rising stock prices is lost. Suddenly, the P/E ratio and not speculation on rising share prices determines the stock value. Consequently, stock prices fall until they reach a sustainable P/E ratio, which is about your proposed value, and stay there.

Answer 7

For a purely scientific and mathematical perspective, you might want to research Catastrophe Theory and Bifurcation Theory.

Catastrophe theory analyzes degenerate critical points of the potential function — points where not just the first derivative, but one or more higher derivatives of the potential function are also zero. These are called the germs of the catastrophe geometries. The degeneracy of these critical points can be unfolded by expanding the potential function as a Taylor series in small perturbations of the parameters.

When the degenerate points are not merely accidental, but are structurally stable, the degenerate points exist as organising centres for particular geometric structures of lower degeneracy, with critical features in the parameter space around them. If the potential function depends on two or fewer active variables, and four or fewer active parameters, then there are only seven generic structures for these bifurcation geometries, with corresponding standard forms into which the Taylor series around the catastrophe germs can be transformed by diffeomorphism (a smooth transformation whose inverse is also smooth).[citation needed] These seven fundamental types are now presented, with the names that Thom gave them.

See also

In mathematics, catastrophe theory is a branch of bifurcation theory in the study of dynamical systems; it is also a particular special case of more general singularity theory in geometry.

Bifurcation theory studies and classifies phenomena characterized by sudden shifts in behavior arising from small changes in circumstances, analysing how the qualitative nature of equation solutions depends on the parameters that appear in the equation. This may lead to sudden and dramatic changes, for example the unpredictable timing and magnitude of a landslide.

Catastrophe theory, which was originated with the work of the French mathematician René Thom in the 1960s, and became very popular not least due to the efforts of Christopher Zeeman in the 1970s, considers the special case where the long-run stable solution can be identified with the minimum of a smooth, well-defined potential function (Lyapunov function).

Small changes in parameters can cause previously stable equilibria to disappear, leading to a large and sudden transition of the behaviour of the system. However, examined in a larger parameter space, catastrophe theory reveals that such bifurcation points tend to occur as part of well-defined qualitative geometrical structures.

It describes why, for instance, a 'house of cards' is perfectly stable until it isn't, and collapses suddenly and unpredictably. The various forces ad stresses distributed among the structure of the cards shifts so subtly that at some point, suddenly, there is no longer an intersection between the stress curves and counterbalancing structural force curves, and the various forces redistribute and no longer can support the structure.

It is reminiscent of what happens when the center of gravity of a structure moves outside of the boundary of the foundation. The structure immediately tumbles at exactly the point where the center of gravity moves outside the boundary, and from that point failure is inevitable. Like a person on a ladder, reaching a fraction of an inch too far, causes the ladder to irreversibly tip - the system seeks a new equilibrium.

Basically, Catastrophe Theory predicts that there is a state where the curves of various economic graphs and curves shift such that the intersection points disappear, and the equilibrium points caused by these intersections is destroyed (it vanishes, the curves no longer intersect). There is no longer a stable equilibrium, and everything collapses.

Abstract Based on mathematical topology, a newly developed theory called catastrophe theory provides interesting explanations of why apparently stable relations display sudden jumps-discontinuities called catastrophes. This theory readily lends itself to applications in economics where problems of unstable relationships occur. This paper is an introduction to the concepts and terminology of catastrophe theory as used in economics and explains its application in providing deeper insights into the theory of the firm in the intermediate microeconomic theory course.

It is no longer used in economic theory, because there is no real universally accepted system of graphs and equations that has ever been developed for economics, so no really useful system of equations could be developed to use with the math of Catastrophe Theory that would make the predictions useful or meaningful. That does not preclude that Catastrophe Theory does not apply, it's just that we can not figure out what the math behind it is.

Answer 8

Robotics & AIs

In recent interviews, Elon Musk has made many claims the AI are potentially more dangerous than Nukes. While many people fear thier ability to win a war against man kind, it is far more likely they will be our undoing by beating us at peace. A mature AI can work longer, harder, cheaper, and with fewer mistakes than a human, and this makes them dangerous. According to the Keynesian Economic Theory, economic collapse is a direct result of reduced spending power, not reduced production potential. Basically, Keynes argues that capitalisms collapses when the people can not or will not spend money.

According to this theory, ubiquitous AI is actually far worse than any natural disaster. Natural disasters cause damage, damage demands rebuilding, rebuilding demand spending, and spending creates a stronger economy. But AI destroys jobs and increases unemployment across all sectors while only creating minimal new areas of spending. AI has the potential to create the worst economic bust in human history. Growing unemployment caused by AI means people can no longer afford goods and services. Unless our economic system is drastically revised within the next few year, this means your demand for goods and services plummets. Less demand means production is also reduced which leads to massive scarcity. Many historically safe business will loose thier consumer base and be forced into bankruptcy encouraging major investors to pull out all of thier investments and try to ride out the recession on savings. On top of this, millions of people loosing thier jobs will start selling off thier retirement stocks en masse just to stay alive. In short, everyone will be trying to sell stocks and no one will want to buy them causing stock prices to plummet.

AI is coming fast, and capitalism itself is not compatible with an economy of producers who are not also consumers. Not only would it be possible for the stock market to not recover by 2030, but the very idea of private ownership of wealth will come under heavy fire. The potential is there for over half of the human population to be rendered unemployable within the next few years meaning that billions of people could fall into abject poverty. Starvation will lead to protests, even open rebellion. Capitalism will be blamed, and Western Civilization will likely be forced to abandon the stock market all together and transition into a more socialist economy where the labor of AI is used to support the masses rather than compete with them.

While arguments exist that new markets will emerge to take the place of old ones, this takes a lot of time. New markets need new ideas, research, testing, financing, logistical planning, and marketing before they can replace a defunct market. Capitalism works well when you have 1-2 defunct markets at a time to replace, in fact, getting rid of obsolete markets is huge part of what makes capitalism so successful, but if AI could render 1/2 of all jobs obsolete at once: that is a way bigger challenge any Capitolist market has ever survived.

Answer 9

https://en.wikipedia.org/wiki/United_States_debt_ceiling

This requires regular political agreement to raise the ceiling and keep covering the debt on Treasury bonds. Every time it gets close the question of "what if agreement wasn't reached" is raised.

In particular, what if the US fails to repay its bonds? They are used as high-denomination money storage for the entire Western financial industry. If the US government ceases to function - that is, a majority in one of the houses chooses to shut it down, as a political move against the President - the knock on effects could be huge.

The collapse in T-bills would collapse the finance industry far worse than the 2008 crisis. Almost all major banks would be legally obliged to cease trading, as they no longer have enough valid reserves.

Protestors start to occupy federal and state capitol buildings. Federal security forces, realizing they cannot be paid until the crisis is over, join them. Elected representatives go into hiding.

The inability of anyone to pay anyone else in the normal way rapidly hits supplies of fuel. The country of three hundred million guns starts to take them out of the safe and load them ...

Answer 10

The stock market pricing is very, very dependent on what the Federal Reserve does. Much of the stock price in the 1930's was due to the Federal Reserve trying to maintain a steady price of gold since we were on the gold standard then. The crash of 1937 was even worse than the 1929 crash but affected fewer people. It was caused by the Federal Reserve tightening up that year.

Today, a lot of people have bought stocks "on margin" which means they have put up perhaps only 10% of the value (and some have borrowed 90% of that 10%). That greatly increases the prices.

In this case, a radical rightwing president installs his choices on the Federal Reserve and they proclaim that we are going back on the gold standard and the goal is $100 / ounce. To get there, they announce a new bank discount rate of 25% which drives the prime rate up to almost 30%. Credit cards start charging almost 50% interest. The new board of the SEC also declares that people buying on margin have to put up 90% of the price as the new requirement. The resulting crash wipes out most hedge funds and many mutual funds have runs which clean them out. It will take more than a decade to wipe out 75 years of inflation and get the dollar back to where 100 can buy an ounce of gold.