If a recent slump in technology stocks, an industry hugely important to California’s economy, spirals into a crash, what would that mean for the Golden State’s overall business climate?
Fears are growing that the dramatic technology rally may be over. Hopes that artificial intelligence will create great wealth for those who master this emerging computer science may have overvalued many companies. An AI reality check could slash their inflated values.
To understand what a steep reversal in tech shares might mean for a typical Californian, my trusty spreadsheet compared a half-century of swings in the Nasdaq Composite Index, tech’s key benchmark, against what happened in the following year with a pair of economic indicators of everyday California life: government tallies of employment and personal income.
Yes, headline-grabbing daily stock swings may matter to your portfolio, or tweak your investment psyche. But it’s better to focus on longer-term moves to understand the economic impact.
To put these economic yardsticks on a calmer playing field, we used subdued calculations: one-year changes based on quarterly averages. So, by this math, late 2026’s tech-stock cooldown still shows the Nasdaq up 8% in the year ending in October. But here’s the slump: Those one-year gains ran almost 50% in April.
So, we focused on worst-case scenarios, defining a Nasdaq crash as a 10% or more drop in the index over a year.
And how often do volatile tech stocks take that kind of dive? Since 1976, the Nasdaq was in crash mode 21% of the time – with the worst being a 52% loss in the year ended in the third quarter of 2001.
Who keeps their job?
Crumbling tech stocks signal California hiring may slow, as the Golden State job market often cools after Nasdaq crashes.
Since 1976, the number of employed Californians fell 43% of the time in the year after the Nasdaq was down 10% or more, with the worst job drop being a 5% decline in the year ended in 2009’s third quarter in the middle of the Great Recession.
Or look at tech stocks’ impact on California’s job market this way: The number of employed Californians grew at a median annual rate of just 0.2% in the year after a Nasdaq crash, a sliver of the 1.6% annual increase that’s been the norm since 1976.
The bigger picture?
Californians’ cash flow also chills after Nasdaq drama.
Consider total personal income, a broad metric that tracks swings in wages, other income sources, jobs and population.
Over half a century, this measure of what every Californian took in, adjusted for inflation, fell 18% of the time in the year after the Nasdaq dropped 10% or more. The worst was also during the Great Recession: a 3% decline in the year ended in 2009’s fourth quarter.
Since 1976, when tech stocks dive, California incomes moderate. The median growth was 2.3% in the year after the Nasdaq crash compared to 2.8% typical increases over the past half-century.
Interesting times
Note that these Nasdaq tumbles happen in, let’s say, interesting times.
Tech stocks crashed three times in the 1980s: twice early in the decade as interest rates soared in a battle against sky-high inflation, and then late in the decade, paralleling broader stock market crashes.
Next, an early 1990s Nasdaq swoon came during a brief U.S. recession.
The following drop was legendary. The then-fledgling internet business created the dot-com bubble, including the Nasdaq’s biggest one-year jump: an 87% surge through the first quarter of 2000. That boom didn’t end well. Plus, this tech bust shook most of the U.S. economy.
Don’t forget that the Nasdaq crashed in the Great Recession, too, along with the global economy. And tech stocks also stumbled during the pandemic’s business complications.
Bottom line
Look, you don’t need a trusty spreadsheet to know tech stocks are a rollercoaster.
Yet you cannot ignore that tech’s wild ride creates a powerful financial draw. The Nasdaq has rewarded investors with a median 15% annual profit over the past half-century. Few investments have done better.
This wealth-creation machine is a major part of California’s economy. And the tech industry has an outsized grip on the Bay Area’s business climate.
So if 2026’s tech-stock weakness morphs into an extended, steep downturn, it’s OK to get antsy about what’s next for the state’s overall business climate.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
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