Why is the stock market on such a tear when the economy appears to be in ravages?
The reason is partly due to a quirk in the way major stock indices, like the S&P 500, are calculated, as Fortune’s Geoff Colvin explains. Because many indices are weighted by market capitalization—meaning that businesses with higher stock market valuations factor in the most—highly prized tech companies tend to dominate.
This situation has created something of a positive feedback loop. Since tech companies have generally benefited the most from the recent coronavirus pandemic—they’ve been lofted by people shifting commercial activities online—the strongest index players have only been getting stronger. As the tech industry surges, so does its bellwether stocks, so too does the stock market at large—at least as measured by many major indices.
It’s as though, instead of a rising tide lifting all boats, the swelling waves somehow caused the largest Carnival Cruise megaships to grow more mammoth in size, even as lesser seafaring vessels capsized.
To illustrate how the situation might have been different, Colvin conjures a nightmare scenario—a Y2K, but real. “Suppose a novel computer virus rather than a coronavirus had struck the economy, aimed at the tech giants, hobbling them.” If such a catastrophe were to occur, the tech giants would be brought to their knees, and “their sudden crisis would initially cause the whole S&P 500 index to drop like a cannonball.”
Perhaps that imagined devastation is not so far-fetched. A particularly bad string of software vulnerabilities enabling a “wormable” cyberattack—one capable of self-propagating—could cause unprecedented destruction. The WannaCry cyberattack of 2017 gave the world a minor taste of what that might look like. Later that same year, the NotPetya cyberattack wreaked havoc, causing billions of dollars in damage and crippling several multinational corporations including Maersk and Merck.
In a blog post earlier this month, the World Economic Forum warned that the world should start planning for such a contingency now. “Our ‘new normal’ isn’t COVID-19 itself—it’s COVID-like incidents. And a cyber pandemic is probably as inevitable as a future disease pandemic,” the authors wrote. “We should prepare for a COVID-like global cyber pandemic that will spread faster and further than a biological virus, with an equal or greater economic impact.”
Of course, if that happened, we would have bigger problems than a crashing stock market.