Turns out, an AI-generated fake news has the power to trigger a stock market crash
The global economy and the stock market are facing a great threat from artificial intelligence, not from an investment bubble, but from its potential to generate and disseminate fake information that can cause mass hysteria. The markets are particularly fragile as retail investors with little to no experience have become the dominant force, and their reliance on social media spells bad news. While a non-AI-related fake news incident is already in the books, there could soon be an avalanche triggered by generative AI fake news, which can move markets 6% with just a post on X, as per Fortune.
Chief economist at UBS Wealth Management, Paul Donovan, recently shared an observation that the markets no longer rely on the actual economic realities of the world, and instead, people judge through the sensationalized media output of their smartphones. Even a top economist at Moody’s Analytics, Mark Zandi, has warned of the increased risks of unsubstantiated rumors. “Markets appear increasingly tainted by speculation,” Zandi wrote on social media. “Markets risk moving in a big way, causality is reversed, and falling asset prices threaten an already vulnerable economy. There are times when I feel markets are overdone and increasingly disconnected from the economy. This is one of those times," he added.
Last year, an incident on these lines caused financial damage, after "unsourced headlines" about a potential “90-day pause in tariffs” went viral on social media, sending markets into a state of turbulence. The frenzy started with National Economic Council Director Kevin Hassett's early morning interview with Fox News, where he was asked whether the president would consider a "90-day pause in tariffs". While Hassett said, "The president is (going to) decide what the president is (going to) decide," many interpreted it as Trump was considering the pause, and a game of Chinese whispers began.
According to CNN’s analysis, the first X post claiming Trump is going to pause tariffs hit X at 10:11 a.m. and within minutes, the New York Stock Exchange, which was recovering from early-morning lows, suddenly surged. The viral posts on X caught the eye of CNBC editors, who soon published a banner saying, “HASSETT: TRUMP IS CONSIDERING A 90-DAY PAUSE IN TARIFFS FOR ALL COUNTRIES, EXCEPT CHINA." Later, Reuters shared an altered version, citing CNBC, adding to the fire. After the joyous surge, the stocks quickly retreated after the White House firmly denied the supposed headline. CNBC reported the White House denial, and Reuters updated its stories before publishing an advisory. However, the financial damage was done within hours of an X post going viral, as per WTTW.
The vulnerability is further exacerbated by the new dynamics of the market, where "dumb money" or retail investors make up a chunk of the investments. According to Fortune, retail investors accounted for a whopping $5.4 trillion in trading activity in 2025, driven by mobile trading apps, online chat groups, and social media communities. Thus, if these highly active, digitally driven, connected retail investors act on sensationalized headlines, the consequences could be dire. “If you put enough ants together, they can move a very big log," Steve Sosnick, chief strategist at Interactive Brokers, told the Associated Press, summarizing the situation.
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