In what some are already calling a “polycrisis” — a more technical term for it all hitting the fan at once — the U.S. invasion of Iran has caused immediate and severe problems for the economy, with oil prices soaring to their highest since 2022. Global stock markets have panicked as a result, with the Nasdaq falling more than 8 percent in three weeks.
“We are in a slow-motion crash at the moment,” said Ben Yearsley, investment consultant at Fairview Investing.
As retail investors increasingly sink their cash into equities, analysts warn that a stock market crash would more severely affect the real economy than previous crises. The amount of household net worth in the U.S. invested in the stock market has swelled to close to 40 percent, up from roughly 20 percent in the 2000s and about 10 percent in 1990.
Last week, UBS chief economist Arend Kapteyn calculated that a 25 percent fall in the S&P 500, around half the drop in the dotcom bubble and 2008 financial crisis, would be enough to generate a comparable hit to family finances. Even a 15 percent fall in the index would be enough to hit GDP by 1 percentage point or more, he added.
It could get worse yet, with no signs of the war abating or the Strait of Hormuz, through which a fifth of the world’s oil and gas exports usually pass, fully opening. Before the war, economists had expected a steady reduction of interest rates as the economy continued its path to health after Russia’s war in Ukraine hiked energy prices in 2022. Now, some are forecasting rate hikes.
“The effects will ripple through the global economy like shockwaves, and we are facing the very real possibility of a full-blown recession that sees serious damage done to stock prices and economic growth,” said Chris Beauchamp, chief market analyst at IG Group.