Three risks that could cause the stock market to collapse
The stock market's arc has rarely been so tightly stretched
An oil crisis that is not resolved.
An AI train that is rushing forward at reckless speed.
The largest stock market listing in history.
It would be strange if the stock market was not nervous right now.
On Monday morning, the Stockholm Stock Exchange fell just over 1 percent. On Friday, the technology-heavy Nasdaq index fell by 4.2 percent, the biggest decline in a trading day since Donald Trump announced his tariffs in April 2025. The broader S&P 500 index fell 2.6 percent.
It seems dramatic – but it is important to have some perspective. The decline comes after unprecedented rises where the S&P 500 has risen for nine weeks in a row and where Nasdaq recorded its highest level ever last week. In particular, shares that manufacture microchips and other things needed for the expansion of AI have risen almost uncontrollably recently.
It was also these shares that fell the most on Friday – an index that consists of semiconductor companies fell on Friday by more than 10 percent. But even after this “crash”, the index has risen by more than 70 percent this year and by more than 140 percent in the past year.
One of the larger semiconductor companies, Micron Technology, fell on Friday by just over 13 percent. After this, the price rise in 2026 totals 174 percent.
A shorter breather seems quite healthy.
What triggered the decline on Friday was statistics showing that the US labor market is doing much better than expected, with 172,000 new jobs in May.
That should be good news – but it also increases the likelihood that the US Federal Reserve will have to raise interest rates this year.
Shares, especially highly valued tech companies, are sensitive to interest rate increases. Higher interest rates make it more profitable to save in safe bonds and can make it tempting to sell high-risk assets.
But the decline can also be seen as a nervous twitch.
What is lurking in the back of many investors' minds is the crash with a capital C. When will it come? Will there even be one?
One is about AI. The largest investment boom ever in peacetime is underway, with tens of trillions of kronor to be invested in data centers and other AI equipment.
Optimism about what this revolution will entail has sent stock prices soaring to new records. Nine of the ten companies in the world with the highest market capitalization are now AI companies.
If it turns out that AI does not deliver profits that can justify the enormous investments, demand for AI services will fall and prices will crash. The fall is great.
So far, the optimists are leading.
A first test of how strong the faith in AI is in the market will come at the end of the week when Elon Musk's Space X goes public. It will be the largest stock market listing in history.
SpaceX is certainly involved in rockets and satellites, but it is also considered an AI company because it owns Musk's AI company xAI and also has an idea to build data centers in space.
The company's valuation is set at nearly $1.8 trillion – a sky-high figure no matter how you measure it.
A price surge on the first day would provide further fuel to the AI bonfire. If the listing is a flop, the concern could spread.
So far, the world has avoided a truly deep crisis – mainly because China has helped by reducing its imports and the world's reserves are rapidly being depleted.
But with each passing day, the risks increase and if it looks like the solution many have been counting on will not come to fruition, the market's view could change quickly. This could result in significantly higher oil prices, rising interest rates and falling stock prices.
Inflation has already started to tick up as a consequence of the conflict – not least in the US where it is now expected to exceed 4 percent in May. This is increasing pressure on the Federal Reserve to raise interest rates – at the same time as Donald Trump is demanding lower interest rates.
This puts new Fed chief Kevin Warsh in a very delicate situation. Signs that he is bowing to Trump could lead to a decline in confidence in the central bank. Not so good considering the US's high national debt and dependence on borrowing money.
The Trump factor is a third risk hovering above the stock market. New crises à la Greenland will not be well received.
How will it go? That there will be new periods of turbulence is extremely unlikely.
In recent years, however, the stock market has shaken off one crisis after another, and price drops have proven to be only temporary bumps in the curve. Being an optimist has proven to be much more profitable than doom-scrolling on war headlines.
But at the same time, the stock market's arc has rarely, if ever, been so tightly stretched. It doesn't take much for it to break.
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