Recently, many people have been asking why the U.S. stock market has kept falling, so I’m going to sort out the background and the details behind this question.

When it comes to volatility in the U.S. stock market, there are actually clues that can be traced back. This year’s major plunge in U.S. stocks mainly stems from three layers of pressure building up on top of one another. First is the escalation of geopolitical tensions in the Middle East. After the U.S. and Israel launched airstrikes against Iran, shipping through the Strait of Hormuz was disrupted, and 20-25% of the world’s oil shipping routes were blocked. Oil tankers were stuck in ports, Brent crude oil prices surged, and this directly pushed up global energy costs. Worries about this kind of supply-chain disruption quickly spread into the stock market, and the market entered a “war pricing” mode.

Second, inflationary pressure from high oil prices began to emerge. Costs for businesses rose—especially in transportation and manufacturing—and investors started to worry whether “stagflation” could occur, meaning economic stagnation while prices do not fall. This scenario is worst for corporate earnings, and consumer spending would also be suppressed. That’s why you can see especially heavy pressure on risk assets such as technology stocks and growth stocks, while utilities and essential consumer goods tend to hold up better.

On top of that, there has been a shift in the Federal Reserve’s stance. At the March FOMC meeting, the decision was to keep interest rates unchanged at 3.5%-3.75%, but the dot plot suggested that in 2026 there might be only one rate cut—or possibly none at all—and inflation expectations were revised upward. Chairman Powell’s tone was cautious, and he even hinted that if inflation gets out of control, they could restart rate hikes. This shattered the market’s optimistic expectations of continued rate cuts, and pressure from rising borrowing costs followed.

Another important factor is profit-taking in AI stocks. Before this downturn, valuations for AI-related tech stocks were already at historic highs, and some big tech companies’ P/E ratios were clearly above their historical averages. When risk-off sentiment heated up, these high-valuation stocks were sold off first, with capital withdrawing quickly, leading to a larger correction in the tech sector.

Why has the U.S. stock market kept falling? In essence, it’s the result of these factors hitting the market one after another. Looking back at history, this is not unusual. During the Great Depression in 1929, the Dow plunged 89% within 33 months; during Black Monday in 1987, it fell 22.6% in a single day; after the burst of the dot-com bubble in 2000, the Nasdaq dropped 78%; and during the 2008 subprime crisis, the Dow fell 52%. Behind every major sell-off was a combination of asset bubbles, policy shifts, and external shocks.

For investors in Taiwan, the impact of the U.S. stock market decline is multi-layered. First, there is the direct contagion of market sentiment: global investors panic-sell in sync, and Taiwan’s stock market suffers as well. Second, foreign investors may pull back from emerging markets, including Taiwan. The most fundamental impact is the linkage to the real economy. The U.S. is Taiwan’s most important export market. If the U.S. economy goes into recession, it directly reduces demand for products from Taiwan—especially in technology and manufacturing. Earlier this year, Taiwan’s stock market also fell by several hundred points in early February and again by the end of March due to the drag from the U.S. stock market; heavyweight stocks such as TSMC and MediaTek were hit first.

When the U.S. stock market drops sharply, capital typically flows into safe-haven assets. U.S. Treasuries, the U.S. dollar, and gold all receive increased attention. Bond prices rise and yields fall; the U.S. dollar appreciates, and gold is also being snapped up. But it’s important to note that if the big drop is caused by runaway inflation, the initial phase could see a “stocks-and-bonds double loss” situation. At times like this, cryptocurrencies tend to behave more like tech stocks and will likely crash as well. Commodities usually fall too, because an economic recession signals reduced demand.

How should retail investors respond? My suggestions are as follows. First, increase defensive assets in your portfolio and lock in stable returns by purchasing high-quality corporate bonds or government bonds. You can also allocate an appropriate amount to inflation-linked assets to hedge energy-price volatility. Second, pay attention to the weightings of technology stocks. If valuations of AI-related stocks are too high, they may experience greater volatility when the interest-rate path is unclear. Consider diversifying risk into defensive sectors such as utilities and healthcare. Third, prepare for risk hedging: you can use options tools or inverse-type ETFs to deal with extreme declines. Fourth, keep a cash position. When the market direction is unclear, having ammunition gives you the ability to pick up bargains after the market is oversold.

Looking back, the answer to why the U.S. stock market keeps falling is actually very simple: asset bubbles have inflated to the extreme, and a policy pivot or an external shock becomes the final straw that breaks the camel’s back. For retail investors, rather than trying to predict the bottom precisely or following the crowd to chase highs and sell lows, it’s better to return to fundamentals—review your own risk tolerance and whether your asset allocation is balanced. Moderately increasing defensive assets, diversifying away from concentrated exposure to tech stocks, making good use of hedging tools, and maintaining cash positions are relatively steady approaches amid extreme volatility. The importance of risk management is absolutely no less than the pursuit of returns.