For explanations, look no further than our old friend, central bank money printing. As long as this persists, as long as the US Federal Reserve keeps its foot flat down on the monetary accelerator, then it is hard to see why the stock market would falter. The stock market has essentially been underwritten by excessively easy monetary policy. Central bankers might deny it, they might protest that this is not the purpose of quantitative easing, zero interest rates and the like, but that’s one of its main effects.

There was little in Jay Powell’s speech to the Jackson Hole Symposium of US monetary policymakers at the weekend, or the series of research papers released to coincide with the event, to upset this assumption.

What would in the past have seemed vanishingly unlikely - that the next big stock market crash originates not on Wall Street but in China - is today eminently possible.

Everything remained on track for some form of tapering later this year, the Fed chairman indicated, but he left investors in no doubt that this would be delayed if economic circumstance demanded it, and he appeared completely unconcerned by the current spike in inflation. Fast rising COVID-19 infections, and the fact that 6 million more Americans are still out of a job than before the pandemic, appeared to be his greater concern.

For stock market investors, it is heads they win, tails they win too. Either the economy struggles, and they get more monetary support, or it brushes aside delta variant concerns, and they get higher growth to underpin seemingly stretched valuations. Even with October looming, no need to worry, then.

Two potential threats to this pleasingly benign outlook for stock markets immediately occur. One is that inflation proves more serious and enduring than central bank modelling suggests it will be.

In such an event, the Fed, European Central Bank, Bank of England et al, could either ignore it and tolerate persistently higher levels of inflation, or they could risk crashing the economy with a sudden tightening. The longer they wait, the more painful the required action is likely to be. Either way, the stock market would correct. Tolerated higher inflation would undermine confidence in the value of money and assets; but equally damaging to equity prices would be the removal of the monetary crutch.

The other big threat creeping up in the wings is China. Time was when the world’s equity markets would take their cue almost entirely from the US. If Wall Street crashed, so would every other market the world over. But if emerging markets crashed, the consequent flight to safety would only further reinforce Wall Street.

That dynamic can no longer be taken for granted. Thanks to the distortions of passive, indexed investing, rapid Chinese growth has left many Western investors far more exposed to China than they used to be. If China crashed, they would suffer serious losses. President Xi Jinping’s crackdown on private enterprise could easily turn into such a rout.

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As George Soros, still one of the canniest investors around, has observed, Xi doesn’t understand markets, so the risks of such a correction are high. In any event, what would in the past have seemed vanishingly unlikely - that the next big stock market crash originates not on Wall Street but in China - is today eminently possible.

I wouldn’t bet on an October crash, but nor would I entirely discount it.

Telegraph, London

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