Has the 'bliss' trade eliminated the risk of a share market crash?

Lead

As the financial year draws to a close, global markets have delivered remarkable returns, but the rally is increasingly concentrated in a handful of AI-driven stocks. According to ABC Australia, Wall Street now accounts for about 65 per cent of the world's stock valuations, and the top 10 companies have attracted more than a third of all cash flowing into the New York Stock Exchange. This has prompted questions about whether the market is in a bubble, and whether a safety net of government support — dubbed the 'bliss' trade — has eliminated the risk of a crash.

Coverage Comparison

Two ABC Australia reports address the sustainability of the stock market boom. The first takes a cautionary view, describing global geopolitics as being in disarray and an energy crisis threatening chaos, yet noting that investors "sail blithely on." It argues that the boom is centred on AI spending, which may be overhyped, and that market concentration is at levels exceeding the tech boom of the 1990s and the fever before 1930 — both episodes that ended badly.

The second report adopts a more analytical tone, questioning whether the concept of "bliss" is credible. It references the S&P 500's record-breaking run, including surpassing 7,600 earlier in the year, and the historical context of past crashes, from 1929 to 1987. It also examines the idea of moral hazard, where government support for failing institutions may encourage reckless risk-taking.

While the first report focuses on the structural weaknesses of the AI-driven rally, the second probes the intellectual underpinnings of the 'bliss' thesis — questioning whether it is nonsense. Both ultimately leave the reader with a sense of uncertainty about the market's trajectory.

Key Claims

The reports contain several claims that are presented as factual, though they rest on a single outlet's reporting. ABC Australia states that "global geopolitics is in disarray," with inflation up, growth stunted, and an energy crisis threatening chaos. These are presented as context for the market's detachment from broader economic fundamentals.

A central claim is the dominance of Wall Street in global equity markets, with 65 per cent of the world's stock valuations attributed to it. The concentration on the NYSE's top 10 firms, attracting more than a third of the cash, is described as a "top-heavy profile" that could be a warning sign.

The AI boom itself is characterised as attracting huge investments, initially into model development, then semiconductors, and now into data centres. The report notes that data centres require vast amounts of energy and water, and that residents are objecting to suburban data centre projects. Authorities are described as questioning how to meet a doubling of electricity demand by 2030 — a looming challenge that could potentially strain the AI boom.

The second report explores the 'bliss' trade, defined as the idea that governments and central banks are reluctant to let big companies fail, because of the financial stress it would bring to the monetary system. It traces this back to the Troubled Asset Relief Program (TARP), which supported banks that had taken on worthless assets during the global financial crisis. While Lehman Brothers was allowed to collapse, the report says a perception arose that some big banks were too big to fail. This creates a moral hazard for executives, who might be inclined to take oversized risks. The report asks whether this safety net has effectively ended the risk of a share market crash — a question it leaves open.

The 'bliss' trade, the report argues, could turn the stock market into a one-way bet, but the report does not fully endorse that view. It suggests that historical crashes, such as the 2008 financial crisis and the 1987 Black Monday, demonstrate that market collapses can have severe economic consequences. The 1992 Australian recession is also linked to the 1987 crash and its policy response.

The report notes that the S&P 500's all-time high was 2,100 a decade ago, and about 4,200 five years ago, before it surpassed 7,600 recently — a rapid ascent that might be unsustainable.

The reports do not provide a comprehensive assessment of the AI boom's productivity gains, and they acknowledge that while the new technology could enhance productivity, it is also possible that too much money has been spent chasing elusive gains.

Perspectives

No distinct named sources or institutional perspectives were presented in the material. The analysis is based on general expert commentary and historical examples, but no specific named parties offered opposing views within the provided extracts.