Recently, many people have been discussing why the U.S. stock market has plummeted. Actually, that's a good question because the underlying logic is much more complex than it appears on the surface.

Speaking of which, U.S. stock market volatility has never been an isolated event. Looking back at history reveals a pattern—before every major crash, the market is always in a bubble. The 1929 leverage stock market bubble burst, the 2000 dot-com bubble, the 2008 subprime crisis, the 2022 high valuations in tech stocks... The pattern is quite similar: asset prices deviate too far from fundamentals, and eventually, a trigger event pops the bubble with a single poke.

Why did the U.S. stock market crash this time? I’ve noticed several factors stacking up. First, the geopolitical tensions in the Middle East have escalated. After joint military actions by the U.S. and allies, shipping through the Strait of Hormuz has been disrupted, causing global oil prices to soar. This directly raises corporate costs, especially hitting transportation and manufacturing sectors hardest. The inflation expectations driven by high oil prices have made the market worry about stagflation—that is, facing high costs while economic growth slows down, which is a double blow to corporate profits.

Second, the Federal Reserve’s changing stance is also crucial. After the March FOMC meeting, the market saw a significant reduction in rate cut expectations. Chairman Powell even hinted that if inflation gets out of control, they might need to raise interest rates again. This completely shattered the previous optimistic outlook of continuous rate cuts. Rising borrowing costs mean high-valuation assets face revaluation pressures.

The third factor not to ignore—AI-related tech stocks have already soared to historic highs. Price-to-earnings ratios are far above historical averages, and investor profit-taking sentiment is strong. Once risk aversion heats up, capital quickly exits these overvalued sectors, which is why tech stocks have fallen especially hard.

I’ve observed that the sharp decline in U.S. stocks has a multi-layered impact on Taiwan stocks. The most direct is market sentiment contagion—when global investors panic, they tend to sell risk assets simultaneously, including Taiwanese stocks. Next is foreign capital withdrawal—since Taiwan’s market relies heavily on foreign investment, they will pull out when liquidity is needed. The fundamental impact is economic—America is Taiwan’s largest export market. An economic recession in the U.S. directly means reduced demand for Taiwanese goods, especially in tech and manufacturing sectors. That’s why heavyweight stocks like TSMC and MediaTek tend to fall sharply along with the U.S. tech sector.

Interestingly, a U.S. stock market crash often triggers typical safe-haven behaviors. Funds flow from stocks into safe assets like U.S. Treasuries, the U.S. dollar, and gold. U.S. Treasuries are especially popular because they are viewed as the safest assets globally. Massive inflows push bond prices up and yields down. The dollar also appreciates as global investors sell risk assets to buy back dollars. Gold, as a traditional safe haven, also becomes popular—unless the market enters extreme panic, forcing investors to liquidate positions to meet margin calls, which could lead to an abnormal sell-off of gold.

So, how should retail investors respond? My advice is not to try to precisely predict the bottom or chase the rally blindly. A more practical approach is to assess your risk tolerance and increase defensive asset allocations in your portfolio, such as high-quality corporate bonds or government bonds for stable income. If your tech stock weighting is too high, consider diversifying into defensive sectors like utilities or healthcare. Also, keep some cash on hand so you can buy cheaper after a sharp decline. When necessary, you can also use CFDs, options, or inverse ETFs to hedge against extreme downside risks.

Looking back at market volatility over the years—from the Great Depression in 1929 to recent geopolitical crises—the underlying reason for every major U.S. stock market crash points to the same logic: asset bubbles, policy shifts, and external shocks stacking up. True investment wisdom isn’t about maximizing returns but understanding and managing risks. Staying rational, maintaining proper allocations, and leaving room for flexibility are the best ways to survive in volatile markets.