Tech markets nosedived across the S&P 500 and Nasdaq on Monday ahead of a Federal Reserve speech, news reports found.

According to Reuters, The S&P tumbled 22.99 points, or a 0.41 percent loss, to 5,611.62. Additionally, the Nasdaq Composite dropped 168.87 points — an 0.94 percent fall — to 17,708.93.

Tech firms like Tesla, NVIDIA, Meta, and Apple shed 3 percent, 2.3 percent, 1.4 percent, and 0.8 percent, respectively.

Overall, tech markets dipped more than one percent in total.

The speaker, Jerome Powell, Chair, US Federal Reserve, called for interest rate cuts just days after a US Bureau of Labor and Statistics (BLS) report slashed around 818,000 jobs off of its estimates.

Analysts have said this could result in a cut of 25 or 50 basis points (bps), with Powell predicted to choose the former amount.

At his Kansas City Fed speech at Jackson Hole, Wyoming, Powell hinted at the measures, stating that the time had “come for policy to adjust.”

He continued,

“The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks. We will do everything we can to support a strong labor market as we make further progress toward price stability.”

Powell’s comments come as US inflation rates hover at 2.89 percent in August, leaving investors and analysts to contemplate the degree and direction of the Fed’s actions in an upcoming mid-September meeting.

Beware the Ides of March 10, 2023

So, how did we arrive at this point? To find out a bit more, we have to revisit the infamous collapse of Silicon Valley Bank (SVB).

In March last year, rising interest rates sparked a massive bank run on the SVB. At the time, Powell held interest rates at around 5.75 percent, leading securities held by the tech lender to destabilise.

According to the Chicago Booth Review, roughly four factors contributed to this, such as Fed quantitative easing increasing uninsured deposits, a swiftly risk-adverse trading market, magnified 2023 losses, and heavier losses than previously expected.

Prior to this, tech startups and companies could more readily go to SVB to receive financing, but after its collapse, many investors were left with shortcomings in their budgets.

In just a narrow space of time, firms innovating and producing semiconducters, green solutions, Web3, cryptocurrency, robotics, and other emerging technologies saw critical funding dissolve.

This led to the bank run, which collapsed SVB in less than seven days.

It was, of course, also exacerbated by the Crypto Winter of 2022, where then-FTX CEO Sam Bankman-Fried’s historic financial scandal incurred $11bn in forfeiture and a 25-year prison sentence from the US Department of Justice (US DoJ).

The Metaverse hype cycle of from 2022 to early 2023 also faced the blowback from the collapse, forcing investment to cool, companies to shed off thousands of employees, and pivot attention from the Metaverse to alleged “spatial computing.”

Artificial Interest and the Rise of Ghost Jobs

Following the death of the metaverse hype cycle (not the Metaverse itself!), investors then aggressively shifted their strategies towards pouring venture capital into artificial intelligence (AI).

This new “golden calf” of the tech industry benefitted heavily from VC capital diverted from the Metaverse and demise of Silicon Valley Bank.

Unlike the Metaverse, which finds its application in a niche set of documented use cases like learning and development (L&D), architecture, engineering, and construction (AEC), gaming, retail, entertainment, and art, companies began a near-ubiquitous integration of AI into industry verticals.

None were off limits — retail, banking, education, defence, AEC, communications, creativity, art, music, video production — and were all subject to integrations from the likes of Sora, Suno, Microsoft Copilot, OpenAI ChatGPT, IBM Watson, Stable Diffusion, and many more.

Just about any sector in the market attempted to apply AI to some degree, namely with the shift from ChatGPT 3.5 to ChatGPT 4.0, which increased its IQ of 155, rivalling that of Tesla and SpaceX founder Elon Musk.

Notwithstanding, Musk has reopened his lawsuit with OpenAI, accusing the latter of following a profit-driven approach to developing artificial intelligence and reneging on its initial open-source ambitions.

However, my attention turned to the labour markets after suspicions peaked in July about a few emerging trends.

Many have struggled to find even basic jobs due a multitude of reasons:

• AI’s poorly-regulated application across the labour market
• Deliberate ghost jobs reducing transparency in job statistics
• HR recruiters fearful of losing their own positions amid waves of layoffs
• Firms leveraging ghost jobs to appeal to investors

I documented in a LinkedIn post about the rising scarcity trend in the labour force in July, and by August, found myself vindicated by the BLS report. 818,000 US jobs (roughly) no longer existed by the government’s own admission, and the economy was going poorly in a way much worse than expected.

I then saw these sentiments reach the annals of global media outlets like Forbes. Social media platforms like YouTube continue trending with the topic, “Why is it so hard to find a job” and “Why [insert job site here] is so cringe.”

Peering further, the Institute for Public Policy Research (IPPR) found the extent of AI’s impact on the future of work in the UK, which, in a long-term worst case scenario, could replace up to nearly 8m jobs with no gains to the UK gross domestic product (GDP). More central estimates predict up to 4.4m job losses and economic gains of 6.3 percent of GDP, or £144bn .

That said, people can no longer ignore the elephant in the room that substantial factors, including IMF estimates that firms will increasingly replace human capital with AI, are leading to this critical junction of the global economy.

Neither could Jodey Arrington, Chair, US House Budget Committee, after he issued the following statement:

“The economy is the top issue in this presidential race and the recent downwardly revised job numbers taken together with persistently high prices and interest rates bellies a much weaker Biden-Harris economy than we were led to believe.

The tax, spend, and regulate economic agenda of Biden-Harris has failed and no one knows that better than working Americans, which is why for six straight months, according to the Consumer Confidence Index, more Americans believe we are headed for a recession.”

As hiring swings from the Great Resignation, to the Big Stay, to the Great Reshuffling, to the (looming) Great Recession/ Depression, all eyes are on Powell and the Fed as they deliberate 17 – 18 September on how many BP cuts they will actually make to interest rates.

Conversely, analysts believe that a 25bps cut would lead to a “soft landing” for the US economy. Speaking to Fortune, Brian Coulton, Chief Economist, Fitch Ratings, said,

“There does not seem to be a serious concern about the risk of an imminent recession and a wave of job losses—i.e., the sort of concerns that could justify rapid rate cuts. Rather it’s about the diminishing threat of elevated wage growth keeping inflation too high.”

“The policy easing path post September will be a gradual one,” he concluded.

Whether these ramblings teeter on the border of conspiracy theory, I would hope that I am wrong and that the markets will return to normality.

However, if I was a gambling man, I would bet on the 50bp cut. My gut tells me that things are much worse than the Fed is letting on. No one wants to spook their clients with the spectre of an imminent recession.

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