How an AI doomsday Substack post caused a mini market crash

What was behind a mini stock market crash on Monday — one that sent the Dow down by 1.7% and some individual stocks like Monday.com and DoorDash down about 7% each?

According to a plethora of coverage from the Wall Street Journal to Fortune, it was an all-too-plausible Substack post from Citrini Research, one of Substack’s best-known and most widely read financial newsletters.

Here’s what to know.

A futuristic scenario, yet all too imaginable

The post laid out a hypothetical near-future scenario in which the declining prices of SAAS stocks in late 2025 and early 2026 proved to be just the beginning of a larger market rout caused by AI disruption cascading through the U.S. economy.

The basic mechanism the post’s authors foresee is this: American companies that typically buy a range of software services from the likes of Zendesk and Monday.com are finding they can replicate the software’s capabilities in-house, essentially vibe-coding such systems using AI. As a result, these client companies discover they have bargaining power, so that they renegotiate their contracts with the software companies, or cut those contracts altogether.

To preserve margin, the software makers then lay off staff. A range of similar phenomena then causes white-collar layoffs to accelerate across the economy, and also causes wage deflation for white-collar workers who remain employed yet find themselves with less-bargaining power.

Summarizing the possibility, the post’s authors put it this way: “AI capabilities improved, companies needed fewer workers, white collar layoffs increased, displaced workers spent less, margin pressure pushed firms to invest more in AI, AI capabilities improved…”

At the same time, “agentic commerce” — an umbrella term that refers to AI changing both selling and buying patterns — could eliminate the advantages many companies from apps like DoorDash to transaction facilitators like Visa $V -0.11% rely on for their moats, namely customer loyalty and inertia. Because AI feels no loyalty and no inertia, the post pointed out, it could function to relentlessly drive down premiums associated with such factors.

As white-collar layoffs continue to grow, and white-collar wages simultaneously soften or fall, all these effects grow more pronounced, the post suggested.

Attacking the idea that AI will create as many jobs as it destroys

The post’s most cogent attack, however, was on the optimistic view that, while AI may be displacing white-collar labor in the short term, it will surely create more jobs in the long term — in line with past technological revolutions, as Federal Reserve chair Jerome Powell has repeatedly said when such concerns have been raised at press conferences over the last year.

“The consensus view was that creative destruction was part of any technological innovation cycle. It would be painful in pockets, but the overall net positives from AI would outweigh any negatives,” the post’s authors said, summarizing this optimistic view.

The problem? AI displacement of labor and AI’s deflationary effect on wages may not be cyclical but structural, and the optimistic view may also fail to account for shorter-term but potentially catastrophic cascading effects of white-collar wage deflation.

“The U.S. economy is a white-collar services economy," the post said. “White-collar workers represented 50% of employment and drove roughly 75% of discretionary consumer spending. The businesses and jobs that AI was chewing up were not tangential to the U.S. economy, they were the U.S. economy.”

Thus, in such a scenario, a hollowing out of the white-collar part of the economy would create “a negative feedback loop with no natural brake,” which the post also called “the human intelligence displacement spiral.”

Real-time market effects of the post’s futuristic scenario

Summing up the damage to Monday’s market, a former Morgan Stanley $MS +0.98% analyst told Quartz that “every stock that got mentioned got mauled.”

However, the real-time and real-world market effects could be a simple flash in the pan. Tuesday’s futures pointed to a modestly positive opening for the overall market, as well as for many of the individual stocks mentioned in the post.

What has become clear is that optimistic theories about AI creating broad U.S. economic strength have shaky foundations, if only in terms of investor confidence. If a Substack post can thoroughly rattle such assumptions, that suggests plenty of traders and other stock-market participants may feel more profound fear than they may publicly admit.

📬 Sign up for the Daily Brief

Our free, fast and fun briefing on the global economy, delivered every weekday morning.

Sign me up