A stock market correction in 2026 would unleash a global financial shock far exceeding the severity of the 2000 crash, warns prominent economist Gita Gopinath.
Meltdown Like No Other
With foreign ownership of American assets at historical highs, Gopinath cautions that the global economy has become “dangerously dependent on American stocks,” leaving it vulnerable to a wealth wipeout estimated at $15 trillion.
Responding to new data on surging international capital flows into Wall Street, Gopinath highlighted that the transmission of a U.S. market crash to the rest of the world would be immediate and devastating.
“This time around a dot-com style correction would be far more consequential for the rest-of-the-world with wealth losses (as a ratio of rest-of-the-world GDP) twice as high,” Gopinath stated on X.
Writing in The Economist, she elaborated on the scale of the potential damage. She calculated that a crash today could “wipe out over $20trn in wealth for American households.”
The international fallout would be equally severe, with Gopinath writing that “foreign investors could face wealth losses exceeding $15trn, or about 20% of the rest of the world's GDP.”
This time around a dot-com style correction would be far more consequential for the rest-of-the-world with wealth losses (as a ratio of rest-of-the-world GDP) twice as high. https://t.co/AeQBbyqFLVhttps://t.co/nQCPfWz5Lh
The warning coincides with data showing that international reliance on U.S. equities has reached unprecedented levels. According to The Kobeissi Letter, foreign investors now allocate a record 32.4% of their U.S. financial assets to equities.
“Foreign investors have never held more US equities,” The Kobeissi Letter reported, noting that international entities currently own a record “$20.8 trillion in US stocks and equity funds.” This exposure has “more than doubled since 2008.”
Foreign investors have never held more US equities:
Foreign investors now allocate a record 32.4% of their US financial assets to equities.
This percentage has more than doubled since 2008 and has surpassed the previous record of 31.4% set in the 1960s.
Compounding the danger is the diminishing ability of the U.S. dollar to act as a buffer. In her article for The Economist, Gopinath observed that the traditional “flight to safety” may fail to materialize due to shrinking policy options.
“There is a lot more wealth on the line now—and much less policy space to soften the blow of a correction,” she wrote. “We should prepare for more severe global consequences.”
Benchmark Indices Rebound After A Mixed Week
After the top U.S. indices closed mixed in the last week, the S&P 500, Nasdaq Composite, and Dow Jones indices rebounded on the first trading day of February.
The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF(NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, closed higher on Monday. The SPY was up 0.50% at $695.41, while the QQQ advanced 0.69% to $626.14.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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