Bloomberg’s Mark Gongloff postulates that the market’s next Black Swan event will be related to climate change like the Amazon rainforest’s dieback or the permafrost melts and releases all its stored methane and CO₂. These events or any catastrophic climate-related event could cause the stock market to lose 40-50% of its valuation. Since we are at it, so could nuclear winter, a 6-mile-diameter asteroid hitting Wall Street or a super volcano blowing Wyoming to the Moon.

By definition, black swan events are not predictable. Some may seem inevitable in hindsight but predicting is difficult especially the future:)

To put a 40-50% climate induced market drops in context, during the great depression the market dropped 83%, 1937-38 just prior to WWII it was 84%, 1973-74 48%, dot.com bubble 49%, mortgage bubble 56.7%, and during covid 34-37%. So, been there, done that, lived through it.

This prediction is based on a study by EDHEC-Risk Climate Impact Institute in London. Gongloff fails to explain how the study reached its market conclusions or what the probability is of the climate events even happening. He just says that the sky is falling.

Gongloff states that a key finding of the study is that climate change damage isn’t priced into the market yet. Gads, this revelation comes from someone working for Bloomberg. The market can’t even price in tomorrow’s JOLTS report much less a possible 2 degree rise in temps by 2100.

‘What if’ scenarios are academically interesting, occasionally, but usually not informative, educational, or worth the resources that produced the study. If a business school could correctly predict Fed interest rate movement for this year rather than forecasting the end of the world in 50 years, I may sit up and listen. Until then–meh.

Source: ‘The Market’s Next Black Swan is Climate Change’ by Mark Gongloff, Bloomberg, 19 July 2024. Understanding Market Corrections by Wes Moss, 2018. Graphic: Black Swan, AI generated, 2024.