The Market No Longer Thinks a Crash Means the End
It's politically unacceptable for the stock market to go down.
The stock market used to be a thermometer for the real world. If the markets were up, the world was good. If the market dropped, it meant the economy was ending.
Behold the above. It’s an audio recording from the S&P 500 futures pit during the “Flash Crash” of May 6, 2010. It’s an incredible historical artifact. That day, the market very briefly dropped 9%.
Listen to it. It’s incredible.
“No offers in the pit!”
"This will blow people up in a big way!"
It’s the sound of pure, helpless financial terror.
Look, a 9% drop in a few minutes is very rude. If the market loses a tenth of its value while you are at lunch, you are allowed to be upset. But in 2010, it felt like a specific kind of big deal. The wounds of the 2008 financial crisis were still incredibly fresh. The assumption was “The global financial system is an illusion and it’s all going to zero.”
If the S&P 500 dropped 9% at 2:00 PM tomorrow, investors would be very annoyed, and financial news anchors would put on their most serious, deeply concerned faces. But I am pretty sure that 50% of the people watching the market wouldn’t think the world was ending. They’d think, “Should I buy this dip?”
We have fundamentally changed our model of what it means when the stock market goes down.
“Is this a buying opportunity?” is now a much more common instinct than “Is this the end?”
Part of this is structural. The guys screaming in the pit have been replaced by robots trading in data centres in New Jersey.
But the biggest thing is years of positive reinforcement. Since 2008, the stock market has crashed for all sorts of reasons: a global pandemic, tariffs, various geopolitical panics, and so on. Every single time, without fail, the most profitable thing to do was to buy stocks.
On a long term chart, the 1987 Black Monday crash looks like a tiny speck. The 2008 great financial crisis looks survivable (which at the time it very much did not). The 2020 Covid crash (the fastest, most violently terrifying market dislocation in modern history) has already been smoothed out into a minor pothole.
The realization people are having is that stocks are structurally required to go up. We have built an entire macroeconomic system that essentially runs on the stock market.
Think about the incentives! Our retirement systems are no longer built on pensions, rather massive pools of money that blindly buy index funds every two weeks. If the stock market actually goes down and stays down for a decade, it’s a political catastrophe. Municipalities go insolvent, tax revenues collapse, and whatever government is in power surely won’t get re-elected.
And so investors have arrived at a pretty sensible conclusion: the people in charge are, in some deep way, more afraid of a sustained market collapse than the public is. If things get bad enough, some combination of central banks, fiscal authorities, market-structure fixes, liquidity facilities, emergency messaging, or newly invented acronyms will appear to stabilize the situation. Maybe not immediately, maybe not elegantly, but eventually.
That is the real post-2008 reality. Stocks do not go up because the world is always good. Stocks go up because too much of the world now depends on them going up, and everyone knows it.