The Guardian
· collected 2026-09-20 · by Richard Partington and Graeme Wearden
Powered by the AI revolution, the US stock market had rallied to a fresh all-time high, as investors bet the multitrillion-dollar investment spree would overshadow the hit from the Iran war.
asserted
spree → power → war
Now the warning lights are flashing red.
asserted
lights → flash → ?
As the fighting in the Middle East intensifies without clear sign of a resolution, financial markets have been thrown into renewed turmoil.
asserted
markets → intensify → turmoil
A slowdown looms in the AI arms race, and tinderbox conditions in the market for government debt are fuelling alarm.
asserted
conditions → loom → alarm
In the past week the US government’s borrowing costs climbed to the highest level since 2007, with knock-on consequences for the finances of households, businesses, and other governments worldwide.
asserted
costs → climb → households
The fear is that Donald Trump’s war is igniting higher levels of inflation.
asserted
war → ignite → inflation
The president’s tax and spending plans – driving Washington’s debt levels above $40tn (£29.9tn) – also has investors worried.
asserted
investors → drive → 40tn
But as the soaring global oil price to above $100 a barrel stokes heavy selling pressure in the bond market, could shares be the next in line for a crash?
uncertain
shares → soar → crash
With the S&P 500 index of leading US companies 3% below an all-time high, and a combined value of more than $20tn for the “magnificent seven” tech stocks – Nvidia, Apple, Google, Microsoft, Meta, Amazon and Tesla – the concern is that markets are overextended just as the storm clouds gather for the world economy.
asserted
clouds → lead → economy
“These are febrile times,” Albert Edwards, a senior analyst at the French investment bank Société Générale, wrote in a note to clients.
asserted
Edwards → write → clients
“The key worry for investors and policymakers alike is the extent to which the current oil price ‘shock’ will ripple through the global economy and whether it will necessitate sharply higher, recession-inducing, interest rates.”
asserted
it → ripple → rates
Famed for his gloomy predictions, Edwards thinks the ingredients for a financial crisis could be coming together amid tinderbox conditions in the US government debt market.
uncertain
ingredients → fame → market
Such is the worry over the Iran war stoking inflation that the US Federal Reserve defied Trump this week with its first interest rate rise since 2023.
asserted
Reserve → stoke → 2023
As households and businesses come under pressure from rising energy bills and surging fuel prices, central banks elsewhere are also taking action.
asserted
banks → come → action
Financial markets suggest the Bank of England will raise interest rates four times before the end of next year, even after it kept borrowing costs on hold this week.
asserted
it → suggest → hold
The European Central Bank raised rates last week, highlighting the hit to the eurozone from the escalating conflict, and the Bank of Japan raised its policy rate to a 31-year high on Friday.
asserted
Bank → raise → Friday
The rationale is that adding to the cost of borrowing will weigh on the economy – limiting the potential for short-term higher rates of inflation from becoming entrenched.
asserted
adding → add → inflation
However, it will hit households and businesses already struggling with a cost of living crisis.
asserted
it → hit → crisis
Job losses will probably rise, in-turn compounding the challenges facing governments swimming in debt.
asserted
losses → rise → debt
A US recession has historically followed about three to 3.5 years after the first rate rise, on average, Deutsche Bank’s Jim Reid has calculated.
asserted
Reid → follow → rise
Markets have a habit of falling, or even crashing, before a recession begins, and often start to recover before the economy does.
asserted
economy → have → habit
However, the big concern among investors is that the main hope of economic redemption – AI – could also turn out to be a dud, amid fears it has fuelled an almighty bubble in the US stock market.
uncertain
it → turn → market
One popular measure used by investors to assess whether a market is overvalued – the CAPE ratio – or cyclically adjusted price-to-earnings ratio – has risen to its highest level since 2000, showing that the US stock market is unusually highly valued compared with its profits.
asserted
market → use → profits
The CAPE ratio for the S&P 500 share index is almost 41 points, more than double its long-term average of about 17 points, and approaching the record high of 44.19 points in December 1999, just before the dotcom crash.
asserted
ratio → approach → crash
Highlighting the challenge, research by Fathom Consulting shows that for the multitrillion-dollar AI boom to turn a profit, it would need the AI-related sales of the tech companies involved to rise by between $600 and $800bn within two years.
asserted
sales → highlight → years
Against a febrile backdrop as investor patience is increasingly tested, the consultancy gives a 30% chance that the AI bubble pops next year.
asserted
bubble → test → chance
Brian Davidson, an economist at the consultancy, said: “For all the impressive advances in AI technologies in recent years, the economics behind the current capex boom do not work.
asserted
economics → say → boom
“Yes, recent AI advances could yet unlock huge productivity gains; but sales of AI models need to increase by hundreds of billions of dollars per year over the next two years to justify the current spend.
uncertain
sales → unlock → spend
Such growth appears unlikely.”
Investors are clearly worried.
asserted
Investors → appear → ?
than 1,000 investors registered for an analyst call conducted by Jefferies this week into “AI Extinction Warnings”, after the bosses of the world’s top tech companies called for a slowdown in “reckless” development.
asserted
bosses → register → development
The situation has parallels with the dotcom crash of the year 2000, when many internet companies that had been billed as the next big thing dramatically tumbled in value.
asserted
that → have → value
That was a reminder that even if a technology is going to be revolutionary, investors can still lose their money if they finance too much infrastructure too early.
asserted
they → go → infrastructure
“It took a decade or more for demand to catch up with the infrastructure laid down in the British canal and railway and US telecoms and fibre booms – and many investors never recovered their capital,” points out Adrian Cox of the Deutsche Bank research team.
asserted
Cox → take → team
A hundred years ago, many small US investors were buying stocks “on margin” – acquiring them with borrowed money.
asserted
investors → buy → money
They blew up in the market turmoil that preceded the Great Depression.
asserted
that → blow → Depression
This year, South Korea’s army of traders have been buying shares in AI-linked chip makers on margin – doubling the value of the blue-chip Kospi index.
asserted
army → buy → index
But once the market started to fall, they were hit by a massive wave of margin calls – when investors are told to stump up more cash to keep borrowing.
asserted
investors → start → cash
Many were forced to sell their shares.
asserted
Many → force → shares
According to Goldman Sachs, 1.2 million South Korean retail investors were hit by margin calls – which is the equivalent of one in 30 adults getting a nasty call from their broker asking them to hand over more money.
uncertain
adults → accord → money
The huge spending plans announced by AI companies are causing concerns that they may simply borrow too much.
uncertain
they → announce → much
…and 23 more, not listed.
The Aporia
