Complexity Economics

Major Stock Markets: Is A Crash Imminent?

domino_smallOver the past few months stock markets have been registering very positive performance. Some analysts claim the markets are in a bubble condition. Bubbles can emerge from cognitive biases, herd behaviour and involve positive feedback loops which accelerate bubble growth. The S&P, for example, has tripled since its low in 2009. Since the 1990s, the economy and stock markets have experienced the dot-com bubble, the mid-2000s housing bubble and now, it appears, we’re approaching the third big bubble: the stock market bubble. Now, bubbles do not necessarily have to burst. However, if they do, they involve a massive decline in stock prices in a very short period of time, typically a few days.

Whether markets are in a state of bubble, or if and when it will burst, is not something that can be determined on rigorous scientific basis. However, a bursting bubble will certainly cause more damage if the domain it embraces is fragile. In a fragile environment the effects of destabilizing events or shocks are generally more severe and can spread very quickly. The exit of Greece from the Euro is an example of a potentially destabilizing event.

A measure of how well a system is able to withstand or absorb destabilizing events or shocks is resilience. Resilience is measured on a scale ranging from 0% to 100%. High values of resilience, say above 80%, reflect systems that are relatively well equipped to face shocks and/or sustained turbulence. Values below 50% point to systems which fragile. However, high fragility is not guarantee of failure – it merely points to system which will have a traumatic collapse if and only if a sufficiently severe shock hits them.

We have measured the resilience of major stock markets and market sectors over the past few months. The results are illustrated in the plots below, where a red arrow indicates the current tendency. First we examine some major stock market indices.

ScreenHunter_2015 May. 18 10.27ScreenHunter_2016 May. 18 10.28ScreenHunter_2021 May. 18 10.59ScreenHunter_2018 May. 18 10.29ScreenHunter_2018 May. 18 10.30ScreenHunter_2020 May. 18 10.30ScreenHunter_2020 May. 18 10.31ScreenHunter_2021 May. 18 10.32ScreenHunter_2014 May. 18 10.27ScreenHunter_2016 May. 18 10.29Industry Sectors:

ScreenHunter_2015 May. 18 10.28ScreenHunter_2021 May. 18 10.31ScreenHunter_2021 May. 18 11.01A look at global finance. First, the system of large banks. Resilience is approximately 75% and growing:

ScreenHunter_2013 May. 18 10.27The Global Financial Resilience Index (GFRI™), which is based on 40 of the world’s major stock indices, shows a steady downward trend and at present registers a resilience of just over 60%.

ScreenHunter_2017 May. 18 10.29

The analysis reveals that most of the major stock markets are on a downward trend in terms of resilience. This is certainly not good news. The fact that many of these markets already have low values of resilience (S&P, CAC 40, FTSE) is also not a good omen. The Asian markets (STI and HSI) are significantly more resilient and show a stable or upward trend. In terms of specific market sectors, Oil & Gas is very fragile (steady at 40%) as well as Automotive (55% and dropping) and Telcos (45% and dropping). The opposite situation is that of the system of large US and EU banks, with a resilience of 75% and growing. As for the Global Financial Resilience Index, which takes into account 40 of the World’s major stock markets, reflecting the stability entire global financial system, it is close to 60% but a diminishing trend is clearly visible. The alarming threshold of 50% could be reached in 3 to 4 months (around September 2015) if the current trend continues.




Established originally in 2005 in the USA, Ontonix is a technology company headquartered in Como, Italy. The unusual technology and solutions developed by Ontonix focus on countering what most threatens safety, advanced products, critical infrastructures, or IT network security - the rapid growth of complexity. In 2007 the company received recognition by being selected as Gartner's Cool Vendor. What makes Ontonix different from all those companies and research centers who claim to manage complexity is that we have a complexity metric. This means that we MEASURE complexity. We detect anomalies in complex defense systems without using Machine Learning for one very good reason: our clients don’t have the luxury of multiple examples of failures necessary to teach software to recognize them. We identify anomalies without having seen them before. Sometimes, you must get it right the first and only time!

1 comment on “Major Stock Markets: Is A Crash Imminent?

  1. Pingback: In a Storm Stay Away From Complex Stocks | Ontonix QCM Blog

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