Recently, the volatility in the U.S. stock market is indeed worth paying attention to. I’ve noticed many people still asking what exactly is causing the decline in U.S. stocks, so I’ve organized some observations from this period in hopes of helping everyone clarify their thinking.

First, let’s talk about the current situation. After the Middle East geopolitical tensions escalated, shipping through the Strait of Hormuz was disrupted, causing global oil prices to rise sharply, which directly increased corporate costs. Coupled with the Federal Reserve’s shift toward a more cautious stance—maintaining interest rates at 3.5%-3.75% in the March meeting and hinting that large rate cuts may not happen, or that they might even consider raising rates if inflation spirals out of control—this broke the market’s previous expectations of continued easing, suddenly changing the overall market sentiment.

Valuations of AI stocks have also come into focus. Those tech giants’ price-to-earnings ratios have long been well above historical averages. As risk aversion increased, funds quickly withdrew from these high-valuation stocks. So, the reason for the U.S. stock decline is actually a combination of multiple factors—geopolitical risks, inflation expectations, policy shifts, profit-taking—all weighing on the market.

Looking back at history, every major U.S. stock decline follows a similar logic. The 1929 Great Depression was driven by leverage bubbles and trade wars; Black Monday in 1987 was triggered by algorithmic trading causing a liquidity crisis; the 2000 dot-com bubble burst due to irrational valuations and Federal Reserve rate hikes; the 2008 subprime mortgage crisis stemmed from housing bubbles and the spread of derivatives risk; the 2020 pandemic was an unexpected economic halt; and in 2022, aggressive rate hikes to combat high inflation played a major role. Each time, the pattern is similar: bubble expansion → triggering event → market crash.

The impact on Taiwan stocks is obvious. When U.S. stocks fall, Taiwan stocks tend to follow—this has become a familiar pattern. On one hand, it’s the contagion of market sentiment; on the other, foreign capital withdraws from emerging markets. Fundamentally, however, a U.S. recession would reduce demand for Taiwanese exports, especially in tech and manufacturing. The sharp declines in Taiwan stocks in February and March reflected the influence of U.S. markets, particularly impacting large-cap stocks like TSMC and MediaTek the most.

The reasons behind U.S. stock declines also affect other assets interestingly. Bonds usually attract safe-haven capital, gold prices tend to rise, and the dollar often appreciates. But if the decline is driven by inflation, there might be a short-term scenario of “stock and bond sell-off together.” Cryptocurrencies, in recent years, have behaved more like tech stocks—when U.S. stocks fall, crypto tends to drop as well.

How should retail investors respond? My advice is not to try to precisely predict the bottom. Instead of chasing highs and selling lows, it’s better to focus on risk management. Consider adding defensive assets to your portfolio, such as high-quality corporate bonds or government bonds, and diversify tech risk into utilities or healthcare sectors. If you want to be more proactive, you can use inverse instruments to hedge against extreme declines. Most importantly, keep some cash on hand so you can buy cheap when the market is oversold.

Ultimately, no matter how complex the reasons for U.S. stock declines are, at their core, it’s a necessary correction when asset prices detach from fundamentals. Every major fluctuation reminds us that risk management is as important as pursuing returns. Returning to fundamentals, reviewing your risk tolerance and asset allocation for balance—this is a relatively prudent approach in extreme market conditions.