Recent fluctuations in the U.S. stock market are indeed worth paying attention to. I have summarized the recent reasons for the decline in U.S. stocks and how this wave of market movements impacts our investors.

First, let's talk about the current situation. The escalation of Middle Eastern geopolitical conflicts is the most direct trigger. The U.S. and Israel's military actions against Iran have disrupted shipping through the Strait of Hormuz, blocking 20-25% of global oil shipping routes, with oil tankers stranded at ports, significantly increasing oil supply risks. Brent crude oil prices soared, pushing up global energy costs, sparking concerns over supply chain disruptions, and affecting inflation expectations. The market has entered a "war pricing" mode, where any news of ceasefires or escalation of conflict triggers intense volatility.

Another issue caused by high oil prices is the concern over stagflation. Rising costs in transportation and manufacturing sectors have pushed up inflation expectations. Investors are worried that this unfavorable combination will squeeze corporate profits and suppress consumption, creating a dilemma for monetary policy. In this environment, technology and growth stocks face especially high pressure.

The Federal Reserve's policies also add uncertainty. The March FOMC meeting decided to keep interest rates at 3.5%-3.75%, but the dot plot showed a significant reduction in the expected rate cuts in 2026, possibly only one cut or none at all. Powell emphasized that if inflation spirals out of control due to energy prices, the Fed might resume rate hikes. This breaks the market's optimistic expectations of continuous rate cuts, with upward pressure on borrowing costs following.

Another factor not to be overlooked is profit-taking in AI-related stocks. Before this decline, AI concept stocks were already valued at historic highs, with some tech giants' P/E ratios far exceeding historical averages. After continuous gains, investor profit-taking sentiment is strong. When risk aversion rises, bullish momentum diminishes quickly, and funds rapidly exit overvalued groups, leading to significant corrections in tech stocks.

Looking at history, the reasons for declines in U.S. stocks often follow similar patterns. During the Great Depression in 1929, a leverage bubble burst combined with trade wars caused the Dow to plummet 89% over 33 months. On Black Monday in 1987, algorithmic trading triggered chain selling, and the Fed's liquidity tightening caused the Dow to fall 22.6% in a single day. The dot-com bubble from 2000-2002 saw massive inflows into unprofitable internet companies; after the Fed raised interest rates, the bubble burst, with the Nasdaq dropping 78%. The 2007-2009 subprime crisis involved a housing bubble and financial derivatives risks, with the Dow falling 52%. The COVID-19 pandemic in 2020 caused a global stock crash, with the Dow dropping over 30% in the short term, but after the Fed's quantitative easing, the S&P 500 recovered all losses within six months. The 2022 bear market driven by rate hikes saw the Fed aggressively raise rates seven times, totaling 425 basis points, with the S&P 500 down 27% and Nasdaq down 35%. In April 2025, Trump's tariff policies were announced, with aggressive trade measures exceeding expectations, causing all three major indices to fall over 10% in two days.

The common pattern behind each U.S. stock decline is: asset bubbles inflate to extremes, and policy shifts or external shocks become the final straw that breaks the market.

These fluctuations impact Taiwan stocks mainly through three channels. First is market sentiment contagion—U.S. stock crashes immediately trigger panic among global investors, leading to synchronized sell-offs of Taiwanese stocks and other risk assets. Second is foreign capital withdrawal—international investors, facing liquidity needs, pull funds from emerging markets. The most fundamental impact is on the real economy—since the U.S. is Taiwan’s most important export market, an economic downturn in the U.S. will directly reduce demand for Taiwanese exports, especially impacting tech and manufacturing sectors. In early February and late March, Taiwan stocks also fell sharply due to U.S. market declines, with heavyweight stocks like TSMC and MediaTek hit hardest.

A U.S. stock market plunge typically triggers a classic risk-averse response: capital flows from equities into U.S. Treasuries, the U.S. dollar, and gold, which are considered safe-haven assets. In bonds, when stocks crash, risk awareness rises, and investors shift to safer assets. U.S. government bonds, especially long-term bonds, are regarded as top global safe havens, and large inflows push bond prices higher and yields lower. The dollar is the ultimate safe-haven currency during global panic; investors sell risk assets to buy dollars, causing the dollar to appreciate. Gold, as a traditional safe asset, also sees increased buying during stock crashes to hedge against uncertainty, driving up gold prices. However, in extreme panic moments, investors may sell gold to meet margin calls on stocks, converting gold into cash.

In commodities, stock market declines usually signal slowing economic growth, reducing demand for industrial raw materials, causing oil and copper prices to fall along with stocks. But if declines are driven by geopolitical supply disruptions, oil prices may rise counter to the trend, creating stagflation. Cryptocurrencies, often called digital gold by supporters, actually behave more like high-risk assets such as tech stocks; during U.S. stock crashes, investors sell cryptocurrencies for cash, causing prices to plummet.

How should retail investors respond to such volatility? My advice is to increase defensive asset allocations in your portfolio—lock in stable interest income with quality corporate or government bonds at appropriate levels, or allocate some assets linked to inflation to hedge geopolitical risks. Second, pay attention to the weight of tech stocks—if AI-related stocks are overvalued, consider diversifying risk into defensive sectors like utilities and healthcare when interest rate paths are uncertain. Proper risk hedging is also crucial—use CFD, options, or inverse ETFs to prepare for potential extreme declines. Lastly, keep some cash on hand—when market direction is unclear, this allows us to buy cheaper assets after sharp declines.

At its core, although the reasons for U.S. stock declines vary, they often involve a combination of asset bubbles, shifts in monetary policy, and external shocks. From 1929 to recent geopolitical shocks, each wave reminds us that risk management is just as important as pursuing returns. Instead of trying to precisely predict bottoms or chase highs, it’s better to return to fundamentals—review your risk tolerance and asset allocation for balance. Increasing defensive assets appropriately, diversifying tech stock concentration, utilizing hedging tools, and maintaining cash positions are relatively prudent strategies amid extreme volatility.