Behind the epic slump of the US stock market

On April 16th, the US stock market experienced a bloody "Black Wednesday". The Dow Jones Index plunged by 1.73%, the Nasdaq Index plunged by 3.07%, and the S&P 500 index dropped by 2.24%. The three major stock indices collectively recorded the biggest single-day decline of the year. This seemingly sudden plunge is actually an inevitable outcome of the Federal Reserve's policy mistakes, the trade bullying of the Trump administration, and the valuation bubble of technology stocks. This disaster not only exposed the vulnerability of the US financial system, but also served as a rehearsal for the decline of the US dollar hegemony.

It is worth noting that on Thursday of the previous week, the S&P 500 index plunged by 3.46% in a single day, the Nasdaq dropped by 4.31%, the 10-year US Treasury yield soared to 4.5%, hitting a new low since 2001, the US dollar index fell below the psychological threshold of 100, and the US stock market, bond market and foreign exchange market all collapsed simultaneously. We have reason to believe that The historic slump of the US stock market this time is a continuation of the "triple kill" of stocks, bonds and foreign exchange, and it is also a further deterioration of the economic suicide operation of the Trump administration under the name of "protecting America".

However, even more ironically, in his speech on that day, Federal Reserve Chair Powell conveyed two major signals to the market in an almost cold manner: one was the concern that the Trump administration's additional tariffs might push up inflation, and the other was a clear statement that "there is no rush to cut interest rates." This contradiction in policy stance fully demonstrates the arrogance of the Federal Reserve. In fact, Powell acknowledged that tariffs might simultaneously impede inflation control and economic growth, but refused to take any substantive intervention measures. This appeasement policy directly led to the collapse of market confidence. After Powell's speech, the Dow Jones Industrial Average's decline expanded to nearly 700 points, which can be called a textbook-level policy disaster. Although institutions such as UBS had long warned that if Trump did not lower tariffs, the US economy would decline significantly, the Federal Reserve still insisted on maintaining high interest rates. Even ignoring the alarm that the WTO has lowered the growth forecast for global goods trade in 2025 to -0.2%. This disregard for economic reality has made the US financial market a victim of policy games.

Furthermore, when the US dollar index plunged to 99.76, hitting a new low since July 2023, while the price of gold soared along with safe-haven assets such as the Japanese yen and the Swiss franc, it revealed deep doubts in the market about the credit of the US dollar. Trump's "America First" policy is inherently in conflict with the global public good nature of the US dollar as a reserve currency. As global funds accelerate their outflow from US dollar assets and turn to gold and bulk commodities, the gold reserves of central banks around the world have soared, and the initial shape of a cross-border diversified monetary order has emerged. If the United States continues to "weaponize" the US dollar, its status as a reserve currency will decline at an accelerated pace.

First of all, the tariff policy of the Trump administration was the core trigger that triggered this stock market crash. The executive order of "reciprocal tariffs" signed on April 2nd was a self-destructive political show. It imposed a 10% benchmark tariff on all trading partners and imposed higher tax rates on specific countries, directly causing chaos in the global supply chain. Yale University's estimates show that this move will cause the inflation rate in the United States to soar by 2.3%, increase household annual spending by $3,800, and the S&P 500 corporate earnings forecast has been revised down by 6.5% to 9.9%. Even more ironically, the market initially misjudged the "mildness" of the policy and even rebounded briefly before the details of the tariffs were announced. However, when the full picture of the policy came to light, the market responded promptly with a sharp decline. The US stock market lost 6.6 trillion US dollars in market value within two days, equivalent to the US government's annual fiscal expenditure. The capricious financial policies of the Trump administration further eroded market trust, and the chaotic policy expectations became the last straw that broke the confidence of the capital market.

Secondly, the bursting of the technology stock bubble. Technology stocks, once the totem of the decade-long bull market in the US stock market, became the "hardest-hit area" on April 16th. The Philadelphia Semiconductor Index plunged by 4.1%, with chip giants like NVIDIA and AMD falling by more than 7%. The market value of star companies such as Apple and Tesla evaporated by over one trillion US dollars. The sharp decline of the Nasdaq index also marked the end of the myth of the "valuation perpetual motion machine" for technology stocks. These enterprises, once regarded as the totems of the new economy by capital, Nowadays, a painful price is being paid for excessive financialization. However, according to the data, even after a sharp decline, the "Buffett indicator" of the US stock market still stands at 170%, which indicates that the valuation bubble in the entire market is far from being cleared. When technological innovation becomes a bargaining chip in geopolitical games, the valuation system of technology stocks is bound to face a systematic reconstruction.

Finally, a paradigm revolution in the global capital market. The profound significance of this stock market crash lies in revealing the end of the unidirectional financial order. When the Federal Reserve loses its market regulation ability, when the weaponization of the US dollar turns against American enterprises, and when technological hegemony encounters supply chain countermeasures, global capital is accelerating its escape from the old paradigm of the Washington consensus. This shift in capital flow fully reveals the fundamental change in investment logic under the background of global industrial chain reconstruction.

In short, when policymakers are obsessed with power games and tech leaders become political outlaws, the capital market will eventually correct its mistakes in the most brutal way. The sharp fall of the US stock market is not the end but the starting point of the reconstruction of the global financial order. Any policy that is anti-globalization and anti-market will eventually be counterattacked by economic laws.