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

“ Sometimes decades go by without anything happening, and sometimes weeks happen that are like decades.”

This famous quote from 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 a single 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 Capitalization Erosion of Tech Giants: The market leaders, the "Mag7" tech giants, faced immense pressure this week, with a total market capitalization loss of up to $1.4 trillion, the largest single-week market cap drop on record. The broader S&P 500 Index wiped out $5.4 trillion in market capitalization 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 absolute weekly 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 stated 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 havens, 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 leads 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 declines across asset classes, risk aversion sharply rises

The market's violent turbulence is not limited to the stock market, as a sharp rise in risk aversion has triggered widespread sell-offs 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 exceeding the worst week during the Silicon Valley Bank (SVB) crisis in March 2023. Meanwhile, volatility in the bond market has also surged to its highest level since early November last year.

• Treasuries in demand, rate cut expectations heat up: Panic-driven capital has flowed 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) performed 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%, and the 30-year Treasury yield also dropped below the federal funds rate, while 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, further steepened after the tariff announcement

• Foreign exchange market turbulence: After a significant drop in the dollar index mid-week, it rebounded on Friday. The traditional safe-haven currency, the yen, strengthened this week. The RMB to USD exchange rate remained relatively stable, essentially flat for the week. However, the commodity currency, the Australian dollar, faced severe selling pressure, with its exchange rate against the USD falling to the lowest level since the COVID crisis in March 2020, and its single-day drop on Friday was the largest since the global financial crisis in 2008.

• Commodity market "collapse": 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 a weekly decline of 11%, 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 drop being the largest since the Lehman Brothers bankruptcy in October 2008.

• Bitcoin shows resilience: Amid the widespread decline of various assets, the price of Bitcoin, representing cryptocurrencies, 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 shows no intention 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 U.S. government. Based on the closing prices before the tariff announcement, major U.S. 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:

• Economic Data Divergence: 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 Federal Reserve Chairman Jerome Powell's judgment that the "economy remains on a solid footing."

• Powell's Hawkish Signals: Despite increasing market turmoil and a sharp rise in interest rate cut expectations, Powell's recent public comments have maintained a relatively hawkish tone, clearly stating that there is "no need" 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 Federal Reserve interest rate cuts to rescue the market, seem to have been "removed from the table" this week. The market confirms that the Trump administration will not change tariff policies, and Powell has also confirmed that the Fed sees no need for action.

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

Summarizing this thrilling week, the market performance has undoubtedly been extremely chaotic. Global markets have experienced a historic sell-off, with both the speed of decline and the breadth of impact 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 adjustment is "far from over."

Looking ahead, Academy Securities analyst Peter Tchir 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 be 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 raise other more complex issues).

• Potential Negative Risks:

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

• Countries may accelerate the signing of new trade agreements with the intention of bypassing the United States.

• 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's personal judgment is that as we enter the weekend, the extreme pessimism in the market has eased somewhat, and the likelihood of positive factors emerging in the coming days is comparable to, or even slightly higher than, negative factors. That said, he still strongly warns:

The low point of this market cycle is likely not yet reached.

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.

Risk Warning and Disclaimer

The market carries risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at one's own risk