Fitch Ratings warns that a sudden AI investment pullback could trigger a 35% U.S. market rout and recession, forcing significant Fed rate cuts, though prediction markets currently assign low odds to such a collapse.
The SPDR S&P 500 ETF would reflect the modeled 35% U.S. stock market decline in Fitch's AI bust scenario.
Fitch's downside scenario includes NVDA falling 50% from all-time high, which would trigger a Polymarket bubble-burst contract.
The iShares Semiconductor ETF is named as a trigger for the AI bubble contract, with a 40% drop as a condition.
Fitch Ratings projects a severe downside scenario where an AI-led market collapse triggers a 35% decline in U.S. equities and a 0.6% GDP contraction by 2027. The model assumes a sharp retreat in tech investment, forcing the Federal Reserve to slash interest rates by 325 basis points to combat the resulting economic stagnation.
The contract requires three of six triggers within 90 days, including a 50% drop in Nvidia shares or a 40% decline in the iShares Semiconductor ETF.
No, Fitch presents this as a severe downside stress test scenario rather than a formal economic forecast.