Analysis suggests that the U.S. stock market will crash. The evidence is the similar economic indicators that appeared during the IT bubble collapse, the financial crisis, and COVID-19.
On the 31st, Hyun-ki Kang, a researcher at DB Financial Investment, noted, "The U.S. economy has reached a critical level of decline," and added, "In past cases, when the relationship of the U.S. 'nominal gross domestic product (GDP) growth rate < base interest rate' was formed, a major crisis followed."
In the early 2000s, during the IT bubble collapse, the 2008 financial crisis, and in 2021 during COVID-19, the U.S. stock index declined when the nominal GDP growth rate was lower than the base interest rate. Researcher Kang observed, "This relationship has reemerged since the second half of last year," and predicted, "In the first quarter of this year, the U.S. nominal GDP growth rate may fall significantly below the base interest rate."
Kang noted that the twin deficit resolution policy of Trump administration 2.0 is likely to have a negative impact on the stock market. The imposition of retaliatory tariffs may strengthen the vulnerabilities of the U.S. in the long term while ensuring the country's long-term continuity, but it poses potential damage to the U.S. economy in the medium term.
Kang explained, "Reducing fiscal expenditure to decrease the U.S. fiscal deficit weakens domestic demand," and added, "Tariffs aimed at reducing the U.S. current account deficit weaken external demand." All these factors contribute to reducing the sales of U.S. corporations.
Kang also predicted that momentum related to China's stimulus policies would enter a lull. He stated, "Various incidents have occurred in China over the past five years, but if the GDP growth rate is maintained at an average of 5%, those issues did not escalate," and added, "During that period, China managed post-crisis recovery after the Evergrande incident and effectively defended against the COVID situation." A 5% GDP growth rate for China indicates a capability for internal healing.
Kang further stated, "There has been much discussion about China’s stimulus policies from 2023 to the present, but their GDP growth rate has merely hovered around 5%," and remarked, "During this period, the financial market digested the narrative of China's stimulus policies like the tale of the boy who cried wolf, alternating between expectations and disappointments," adding, "In reality, China has been quietly aiming for a GDP growth rate of 5%, capable of supporting domestic demand while preventing a bubble."
If the U.S. stock market falls deeply and China's stock market enters a lull, the driving force behind the South Korean stock market cannot help but weaken. Kang added, "The rebound of the South Korean stock market will be completed as it unfolded from the beginning of the year to mid-March," and mentioned, "There exists a possibility of a further decline in the future."