Recorded in history! What a week it has been, the global markets are all in a daze

“ Sometimes decades go by without anything happening, and sometimes weeks see events that span decades.”

This famous quote by Lenin may be the most appropriate commentary on the extreme turmoil in the global financial markets over the past week.

In just a few trading days this week, global capital markets experienced the most severe sell-off since the COVID-19 pandemic began in March 2020, with multiple market indicators hitting historical lows. From the stock market to commodities, almost all asset classes faced a "collective slaughter."

The trigger for all this pointed directly to the unexpectedly high tariff policy suddenly announced by the U.S. government.

Global Stock Markets Face "Historic" Sell-off

This week, the global financial markets experienced a seismic shock, the intensity of which is enough to be recorded in history. Both global and U.S. stock markets recorded their worst weekly performance since the market circuit breaker triggered by the COVID-19 pandemic in March 2020.

The breadth and depth of the market sell-off were shocking:

• Index Plunge and Bear Market Signals: The Dow Jones Industrial Average plummeted about 2,200 points in one day on Friday, marking the largest single-day point drop in history. The tech-heavy Nasdaq Composite Index and the Russell 2000 Index, which represents small-cap stocks, have both entered a technical bear market (i.e., down more than 20% from recent highs).

• Massive Market Value Erosion of Tech Giants: The market leaders, the "Mag7" tech giants, faced immense pressure this week, with a total market value loss of up to $1.4 trillion, the largest single-week market value drop on record. The broader S&P 500 Index erased $5.4 trillion in market value in just the past two trading days, averaging a daily loss of $2.7 trillion.

• Panic Spreading and Trading Surge: Market panic escalated sharply. The VIX index (the "fear index"), which measures market volatility, recorded the largest single-week absolute increase since February 2020, closing at a new high since the COVID-19 pandemic. Accompanying the panic was a dramatic increase in trading volume, with total trading volume in U.S. stocks on Friday setting a historical record. A report from Goldman Sachs' trading department noted that the sell-off on Friday felt "more unsettling" than the previous day, with large sell orders appearing sporadically and unpredictably, mainly from long-term investment institutions, focusing on bank stocks, Mag7 tech stocks, and some industrial stocks.

• All sectors hit hard: The market decline has left almost no safe haven, with all industry sectors recording losses this week. The energy and technology sectors were the hardest hit, leading the market down. Traditional defensive sectors, such as consumer staples and utilities, although experiencing relatively smaller declines, were not spared. The performance of cyclical stocks relative to the broader market recorded its worst performance since August 2024.

• Significant regional performance differences: In terms of cumulative performance year-to-date, the Chinese stock market still maintains a leading position among major global markets. However, European stock markets turned from gains to losses this week, while the U.S. stock market became the "epicenter" of this round of global sell-off, suffering heavy losses.

Widespread decline across asset classes, risk aversion sentiment surges

The market's violent turbulence is not limited to the stock market, as the sharp rise in risk aversion sentiment has triggered a broad sell-off across asset classes.

• Credit market risks surge: The U.S. high-yield (junk) bond market has raised red flags, with its credit spread (the additional yield over risk-free government bonds) sharply widening by over 70 basis points this week. This marks the worst weekly performance since the early days of the COVID crisis in April 2020, with the widening of spreads even surpassing the worst week during the Silicon Valley Bank (SVB) crisis in March 2023. At the same time, volatility in the bond market has soared to its highest level since early November last year.

• Treasuries in demand, interest rate cut expectations heat up: Panic sentiment has driven funds into U.S. Treasuries, viewed as a safe haven, leading to a significant drop in yields across all maturities. Short-term Treasury yields (such as the 2-year) have held up relatively well, but the entire yield curve shifted down by 25-30 basis points this week. The key 10-year Treasury yield fell below the psychological level of 4%, while the 30-year Treasury yield also dropped below the federal funds rate, and the 2-year Treasury yield hit a new low since early October last year. Market expectations for the Federal Reserve's future monetary policy have also undergone a dramatic shift, with the interest rate futures market currently fully pricing in the possibility of up to five rate cuts, and even beginning to price in the probability of emergency rate cuts between regular meetings. As a result, the yield curve, which reflects the spread between short and long-term rates, steepened further after the tariff news was announced.

• Foreign Exchange Market Turbulence: The US Dollar Index rebounded on Friday after a significant drop in the middle of the week. The traditional safe-haven currency, the Japanese Yen, strengthened this week. The exchange rate of the Renminbi against the US Dollar remained relatively stable, essentially flat for the week. However, the commodity currency Australian Dollar faced fierce selling, with its exchange rate against the US Dollar dropping to the lowest level since the COVID-19 crisis in March 2020, and its single-day decline on Friday marked the largest since the global financial crisis in 2008.

• Commodity Market "Crash": The commodity market experienced a "devastating" blow in the last two trading days of the week, with the overall price index recording the largest two-day drop since September 2011. International crude oil prices plummeted from a five-week high to a four-year low, with an 11% decline for the week, marking the worst weekly performance since the growth concerns triggered by the SVB crisis in March 2023. Gold also did not escape the downturn, recording its second weekly decline of the year, with a significant drop on Friday marking the worst single-day performance since November 2024. Copper prices, which had previously reached historical highs, also sharply corrected, falling to a two-month low, with Friday's single-day decline being the largest since the Lehman Brothers bankruptcy in October 2008.

• Bitcoin Shows Resilience: Amidst the general decline of various assets, the price of Bitcoin, representing the cryptocurrency sector, remained essentially flat this week, demonstrating relative resilience. Market commentators suggest that this may indicate that participants in the crypto market anticipate potential changes in liquidity in the future.

Tariffs as the Trigger, Fed Unlikely to Intervene

The direct trigger for the severe turbulence in global markets this week is widely believed to be the "harsher than expected" tariff measures announced by the US government. Based on the closing prices before the tariff announcement, major US stock indices cumulatively fell by 9% to 10% in the following trading days.

Despite the market panic, the Federal Reserve does not seem to show an immediate willingness to intervene. This stance is based on the following points:

• Divergence in Economic Data: The latest economic data shows a clear "soft-hard divergence"—the "soft data" reflecting market sentiment and expectations continues to be weak, while the "hard data" reflecting actual economic activity remains strong. This provides support for Fed Chairman Jerome Powell's assessment that the "US economy remains on a solid footing."

• Powell's Hawkish Signal: Despite increasing market turmoil and a sharp rise in interest rate cut expectations, Powell's recent public comments maintained a relatively hawkish tone, clearly stating that there is no necessity for action "at this time."

• Market Interpretation of "Double Put" Failure: Investors feel that both the "Trump Put," which hopes for government adjustments to tariff policies, and the "Fed Put," which anticipates interest rate cuts from the Federal Reserve to save the market, seem to have been "removed from the table" this week. The market confirmed that the Trump administration will not change tariff policies, and Powell also confirmed that the Fed sees no need for action at this time.

Market Outlook: Cautious in the Short Term, Focus on Subsequent Developments

Summarizing this thrilling week, the market's performance has undoubtedly been extremely chaotic. Global markets experienced historic sell-offs, with the speed and breadth of the declines being quite rare.

It is worth noting that the last time the S&P 500 index experienced such a rapid decline, the Federal Reserve quickly intervened and launched a massive rescue plan. Additionally, the current level of real yields may also suggest that the market's adjustment is "far from over."

Looking ahead, Peter Tchir, an analyst at Academy Securities, provides a relatively balanced perspective, pointing out potential positive and negative factors over the weekend and in the near future:

• Potential Positive Factors:

• After two days of significant declines in the stock market, the U.S. government may feel pressured to seek and announce some "wins" over the weekend to soothe the market.

• The government may also choose to "redo" or "modify" the tariff policies that triggered the turmoil, or make related personnel adjustments.

• There may even be legal challenges regarding the legitimacy of the tariff policies, which could be beneficial for the market in the short term (but may trigger other more complex issues).

• Potential Negative Risks:

• More countries or regions may join in imposing retaliatory tariffs against the U.S.

• Countries may accelerate the signing of new trade agreements aimed at bypassing the U.S.

• Other unexpected negative shock events may occur globally over the weekend.

• Even if the market experiences a technical rebound, considering that market expectations and global relations have been severely damaged, the rebound may be difficult to sustain.

• A key question is: at what point will investors begin to lose confidence and join the selling ranks?

Tchir personally judges that as the weekend approaches, the extreme pessimism in the market has somewhat eased, and the likelihood of positive factors emerging in the coming days is roughly equal to, or even slightly higher than, negative factors. That said, he still strongly warns:

The low point of the current market cycle is likely not yet here.

Therefore, he advises investors to remain cautious about their current positions and be prepared to quickly close any long positions and swiftly re-establish short positions.