Many analysts are saying that the current geopolitical instability can lead to levels of external shock that few investors are ready for.
Stock Market Uncertainties
After climbing to fresh new highs in April, US equities have been hit with a wave of uncertainty. With worsening trade-war developments, the markets are left stuck amid a crisis which blindsided many.
According to Vincent Deluard, a macro strategist at INTL FCStone, there are three “black swan” events which could send stock markets tumbling into a bear market. These tail-risk events point to three distinct possible scenarios.
Black Swan Scenarios
Private markets struggle to meet expectations after Lyft’s and Uber’s poor showing
Deluard mentions this as a likely possibility, citing Uber’s 20 percent loss since its IPO and Lyft’s own 35 percent selloff. Capital raises might, as a result, slow down as option packages lose value. Many employees may leave as skeletons come out of the closet for these ‘tech unicorns.’
Venezuela or Iran cause crude oil prices to collapse
Iran and Venezuela are two of the leading crude oil producers in the world and both are facing extreme instability. With a whopping 297 billion barrels, Venezuela has the world’s largest discovered oil reserves.
Just recently, President Trump has been escalating tension with Iran by threatening to send some 120,000 troops to the country. Although he dismissed such possibilities last week, he has since confirmed that it is still being considered.
If geopolitical shock were to crash crude oil prices, the effect would be comparable to a battering ram smashing through the entire economy.
A political shakeup in 2020
Although President Trump’s policies have caused significant uncertainty, the real shock may come in 2020.
If a populist left candidate like Bernie Sanders wins, the stock markets may come tumbling. However, this is the least likely of Deluard’s possible ‘black swan’ events. There’s no indication that the current high-risk political situation is preferable to a possible leftist presidency.
These three possible black swan events have the potential to seriously disrupt global markets, but it remains to be seen whether the current patchy global ‘stability’ will hold long enough for these issues to be worked out. As of now, there’s little room for optimism.
Do you agree with Deluard’s three black swan events? Do you see any other possible market disruptors? Let us know your thoughts in the comments below.