There could also be some divided opinion amongst economists in regards to the trajectory of the U.S. financial system, however one factor they’ll agree on is that the tech sector—particularly its funding—has been the engine driving U.S. progress.
Traders, whether or not they’re companies or people, have had quite a bit to get enthusiastic about lately. The fast improvement of synthetic intelligence has reshaped expectations about how effectively companies can function and what the working world will appear to be consequently.
However Wall Avenue has been right here earlier than, additionally with the tech sector. Whereas the dotcom frenzy produced lots of the family names we all know right now, it additionally proved to be a bubble with trillions of {dollars} wiped off market valuations.
Analysts are conscious that overly bullish expectations could fall flat—even JPMorgan Chase CEO Jamie Dimon has warned some elements of the present funding cycle will in the end show to be in a bubble.
However new modeling from Oxford Economics suggests the popping of those expectations could show to be a wrench within the works for America’s financial system.
“The tech sector has been the key driver of recent U.S. growth, with surging stock prices and heavy investment in equipment and software,” wrote Oxford Economics’ lead economist, Adam Slater, in a word yesterday shared with Fortune. “But this leaves the U.S. vulnerable if tech suffers a downturn—without tech investment, U.S. GDP would have barely grown in H1 2025, and business investment would have actually declined.”
Oxford Economics modeled two eventualities off the again of a tech downturn, an surroundings the place funding slows and inventory costs fell in tandem. The primary, a U.S.-centered downturn with modest worldwide spillover would see home GDP progress fall to 0.8% in 2026—which Slater writes is “flirting with recession.” The ripple results would additionally snag the worldwide financial system, slowing it from predicted progress of two.5% in 2026 to 2%.
For state of affairs two, Oxford Economics modeled wider worldwide fairness shocks much like ranges seen in 2002, with the volatility persevering with over a number of quarters. Such ramifications would layer on prime of the damages outlined to a extra U.S.-centric downturn, with world GDP falling to 1.7% in 2026. Moreover, exterior the U.S. the GDP of Mexico and Canada could be considerably adversely affected, in addition to Asian economies comparable to Vietnam, Taiwan, South Korea, and Malaysia.
“In all these economies, GDP is lowered 1.5% or more by 2027 compared to our baseline,” Slater provides.
Publicity smaller than dotcom period
That being stated, Slater provides that whereas a tech downturn could be “far from negligible,” the dangers are extra contained than within the dotcom bubble.
From an fairness perspective, Slater famous, there are just a few potential benchmarks. Had tech shares dropped by dotcom ranges in 2021–22 they might have fallen by a 3rd, whereas in December 2024 to April 2025, this is able to indicate a fall of 19%.
“Finally, for tech valuations to reconnect with their own 10-year average would imply a fall (all else equal) of 35%. The average of all these benchmarks suggests a fall in tech stocks of around 25%,” Slater continued. “Though that is a lot much less extreme than the dotcom crash … valuations look much less stretched than in 2000. And it could nonetheless be more likely to inflict a extreme destructive financial blow, not least as a result of U.S. households are significantly extra uncovered to an fairness selloff than they had been 25 years in the past.
“Direct and indirect equity holdings are around 250% of U.S. disposable income, up from 180% in 2000. Fed surveys indicate that around 60% of U.S. families own stocks, with exposure concentrated among higher-income households who account for 45% to 50% of consumer spending.”
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