Moody's Analytics' Mark Zandi: Biggest risk to economy is correction in stocks focused on AI

Economic Impact of AI and Wealth Effect - The surge in equity prices is creating a wealth effect that drives consumer spending and economic growth, with a total valuation increase of publicly traded stocks by approximately $10 to $11 trillion over the past year [2][3] - For every dollar increase in wealth, there is an estimated increase of $0.345 in additional spending, highlighting the economy's dependency on the continued rise of AI stocks [3] - Investment spending in AI is significant, with the U.S. having 5,500 data centers compared to 3,500 globally, indicating a strong investment environment fueled by high stock prices [5][6] Risks and Concerns - The current equity market run-up is compared to the Y2K era, suggesting potential overvaluation and vulnerability if the AI-driven growth slows down [7][11] - There are concerns about job losses due to AI advancements, with the job market showing signs of stagnation and potential recession, as companies are laying off employees while maintaining flat headcounts [12][14] - The economy is currently growing at a rate of 1.5% to 2%, which is below its potential, despite the positive contributions from AI and other factors [18] Investment Landscape - The investment landscape is shifting, with many companies, including those that are privately held, relying on their stock prices for growth and expansion [10] - The commentary from major companies indicates a strong commitment to investment despite stock price fluctuations, suggesting a robust investment climate [9][10] - The overall economic growth is being supported by factors beyond AI, including tax reforms and increasing exports, which contribute to a more complex economic environment [15][18]