By Michael Pröbsting, Revolutionary Communist International Tendency (RCIT), 2 April 2025, www.thecommunists.net

 

 

 

Since a few weeks, global stock markets are getting rocked. Yesterday, the Wall Streets’ S&P 500 was down 0.6% following one of its worst losses of the past couple of years on Friday. Japan’s Nikkei 225 index dropped 4%. South Korea’s Kospi sank 3%, and France’s CAC 40 fell 1.6%. All in all, the U.S. stock market lost nearly 6% in the first three months of the year, which makes this its worst quarter in nearly three years.

 

What are the reasons for the turbulence in the stock markets? Basically, it is a combination of economic and political reasons.

 

 

 

From stagnation towards another recession?

 

 

 

As we pointed out in other documents, the capitalist world economy is stuck in stagnation and analysts from Goldman Sachs and J.P. Morgan see an increasing chance for another recession by next year. [1] Global industrial production (calculated in volume) – the heart of capitalist value production – increased by only 1.0% (2023) and 1.7% (2024), a very low level for a period which normally should see massive cyclical upswing after the deep recession in 2019-20. However, even this modest growth was mainly thanks to China and Russia. In contrast, the old imperialist Western powers experienced a decline in industrial production in these two years. (Euro Area: -1.6% and -2.9%; U.S.: +0.2% and -0.3%; Britain: -0.9% and -1.7%; Japan: -1.5% and -2.5%) (See Table 1)

 

 

 

Table 1. Growth of World Industrial Production Volume (in %), 2022 – 4^th Quarter 2024 ^[2]

 

                   2022      2023      2024                    2024Q2 2024Q3 2024Q4

 

World                                                            3.0         1.0         1.7                         0.6              0.4         0.9

 

Advanced Economies                                 1.9         -1.0        -0.6                        0.6              -0.2        0.2

 

Euro Area                                                    1.6         -1.6        -2.9                       -0.4              -0.4        -0.4

 

United States                                              3.4         0.2         -0.3                       0.6              -0.1        -0.2

 

United Kingdom                                        -6.4        -0.9        -1.7                      -0.5              -0.3        -0.8

 

Japan                                                             0.1         -1.5        -2.5                       2.1              0.5         1.1

 

Advanced Asia (excl. Japan)                     0.3         -5.8        5.8                        2.8              1.2         2.4

 

Other advanced economies                    3.4         0.4         0.7                        0.3              -0.9        0.5

 

Emerging Economies                                  4.0         3.0         3.9                        0.6              1.0         1.6

 

China                                                            3.7         4.4         5.6                        0.5              1.3         2.5

 

Emerging Asia (excl. China)                     5.0         2.7         2.8                        0.9              0.7         0.2

 

Eastern Europe / CIS                                 -1.4        4.2         4.6                        1.8              0.0         1.9

 

Latin America                                             3.4         0.8         1.0                        0.8              1.0         -0.3

 

Africa and Middle East                             7.1         -1.5        -0.6                       0.2              0.2         0.0

 

 

 

And according to the U.S. Federal Reserve, manufacturing and capacity in the U.S. are still far below their levels before the recession in 2008 and about the same as in early 2020, i.e. before the start of the last recession. (See Figure 1)

 

 

 

Figure 1. Industrial Production and Capacity in the U.S. Economy, 1967-2024 ^[3]

 

 

 

 

At the same time, stock markets in general and the U.S. in particular, are massively inflated. Ruchir Sharma, chair of Rockefeller International, wrote in the Financial times that the US stock market boom is “the mother of all bubbles”.

 

“United by faith in the strength of US financial markets and their capacity to keep outperforming all other economies, global investors are committing more capital to a single country than ever before in modern history. The US stock market now floats above the rest. Relative prices are the highest since data began over a century ago and relative valuations are at a peak since data began half a century ago. As a result, the US accounts for nearly 70 per cent of the leading global stock index, up from 30 per cent in the 1980s. And the dollar, by some measures, trades at a higher value than at any time since the developed world abandoned fixed exchange rates 50 years ago.” ^[4]

 

The author concludes: “Talk of bubbles in tech or AI, or in investment strategies focused on growth and momentum, obscures the mother of all bubbles in US markets. Thoroughly dominating the mind space of global investors, America is over-owned, overvalued and overhyped to a degree never seen before.”

 

The bullish stock markets are a bubble because they don’t relate at all to the development of the real economy. As shown above, industrial production is basically stagnating since a short upswing after the deep recession in 2019-20.

 

Furthermore, gains at Wall Street have been driven in the last years, to a large degree, by the rise of stocks of a small group of tech corporations – the so-called “Magnificent Seven” (Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta and Tesla). But leaving aside that a lot of the AI hype is not related to real growth of profits, the American “Magnificent Seven” recently suffered a severe blow by even more magnificent Chinese corporations which are capable to build cheaper and more efficient AI models (e.g. “R1” developed by the Chinese AI company DeepSeek).

 

The Marxist economist Michael Roberts noted: “Now investors are concerned that this spending is unnecessary and, more to the point, that it will hit the profitability of the American companies if DeepSeek can deliver AI applications at a tenth of the cost. Five of the biggest technology stocks geared to AI — chipmaker Nvidia and so-called ‘hyperscalers’ Alphabet, Amazon, Microsoft and Meta Platforms — collectively shed almost $750bn of their stock market value in one day.” [5]

 

Furthermore, the stock market boom in the past years has not reflected an increase of profitability of U.S. corporations. As Figure 2 shows, the average rate of profit on U.S. corporate capital has declined over the long run in the past decades.

 

 

 

Figure 2: U.S. Average Rate of Profit on Corporate Capital (in %), 1945-2021 ^[6]

 

 

 

 

Hence, investments are more and more financed by increasing debts and, consequently, an increasing share of profits is used for interest payments. According to Roberts, U.S. corporate debt to earnings remains near all-time highs. Over 40% of the top 2000 companies in the U.S. are unprofitable, the most since the last recession in 2019-20. At the same time, interest expense as a % of total debt of these firms hit 7.1%, the highest since 2003. U.S. company bankruptcies in 2024 surpassed 2020 pandemic levels. [7]

 

All this shows that the stock market boom has been a bubble reflecting the rise in what Marx called fictitious capital. The above-mentioned Sharma predicted in December last year in another article in the Financial Times that the stock market bubble must burst sooner or later: “The longer a trend lasts, the more confident investors get, and the more indiscriminately they buy into the mania. In the late stages of a bubble, prices typically go parabolic, and over the past six months US stock prices have outgained others by the widest margin for any comparable period in at least a quarter century. When flying in such thin air, it doesn’t take much to stall the engines. All the classic signs of extreme prices, valuations and sentiment suggest the end is near. It’s time to bet against ‘American exceptionalism’.” ^[8]

 

As we did show in our recently published pamphlet “Trump-Putin Rapprochement Signals End of ‘Trans-Atlantic Partnership’”, the turbulence in the stock markets and the increasing problems of America’s leading corporations reflect a more general development of decline of global capitalism in general and American capitalism in particular. [9] The U.S. economy has become characterised by stagnation of net investments and profit rates while, at the same time, its debts are rapidly increasing. The above-mentioned economist Ruchir Sharma writes: “America’s is its sharply increasing addiction to government debt. My calculations suggest it now takes nearly $2 of new government debt to generate an additional $1 of US GDP growth — a 50 per cent increase on just five years ago.” It does not need much imagination to see the U.S. economy facing a deep crisis soon.

 

While the crisis-ridden capitalist economy is fundamental for the current turbulence in the stock markets, Trump’s erratic policy definitely exacerbates these problems. By threatening all other major economies – both those of allies (until now) as well as rivals – with tariffs, he raises the costs for domestic capitalists as well as consumers and provokes massive insecurity in the boardrooms all over world. It is well-known that capitalists need security and predictability to make billion-dollar investments. Trump personifies the opposite of such requirements as nobody (including himself) knows his plans for next week. As we are heading towards a full-blown global tariff war, it is very likely that this will cause a severe recession – both in real economy as well as in the stock markets.