The recent sharp decline in the US stock market has indeed sparked quite a bit of discussion. I’ll organize my observations to see what’s really happening behind the scenes.

Actually, the reasons for the big drop in US stocks are both complex and simple. This time, it was mainly triggered directly by escalating geopolitical conflicts. The US and Israel’s military actions against Iran caused the Strait of Hormuz shipping to be blocked, oil tankers stranded, and the risk to oil supply greatly increased. Brent crude oil prices soared, pushing up global energy costs, and concerns about supply chain disruptions followed. The market entered a “war pricing” mode, where any news of ceasefire negotiations or escalation of conflict would trigger intense volatility.

The chain reaction from rising oil prices is not to be underestimated. Corporate costs increased, and inflation expectations were also driven higher. Many investors began to worry about stagflation, a combination that often compresses corporate profits and suppresses consumption, creating a dilemma for monetary policy. Risk assets like technology and growth stocks were naturally hit hardest.

Another key factor is the stance of the Federal Reserve. The March FOMC meeting decided to keep interest rates unchanged at 3.5%-3.75%, with the dot plot showing a significant reduction in the number of rate cuts in 2026, possibly only one or none at all. Powell’s comments also leaned cautious, emphasizing that if inflation spirals out of control due to energy prices, the Fed might still need to raise rates. This directly shattered the market’s previous optimistic expectations of continued rate cuts, with borrowing costs rising as a result.

Don’t forget about AI. Before the decline, valuations of AI-related tech stocks were already at historic highs, with some tech giants’ P/E ratios significantly above their historical averages. Concerns about the sustainability of AI capital expenditure and commercialization progress became more apparent. Coupled with profit-taking after consecutive gains, once geopolitical conflicts triggered risk aversion, funds immediately withdrew from overvalued AI groups, leading to especially large corrections in tech stocks.

Regarding the impact of the US stock market decline on other markets, I notice several clear transmission channels. First is the contagion effect of market sentiment. A sharp drop in US stocks immediately triggers panic among global investors, leading to risk asset sell-offs like Taiwan stocks. Second is the withdrawal of foreign capital. When US stocks fluctuate, international investors often pull funds from emerging markets like Taiwan to meet liquidity needs. The most fundamental link remains in the real economy. The US is Taiwan’s most important export market; a US recession directly reduces demand for Taiwanese products, especially in tech and manufacturing. In early February and late March, Taiwan stocks also fell hundreds of points due to US market weakness, with heavyweight stocks like TSMC and MediaTek hit hardest.

A US stock market crash usually triggers a “risk-off mode.” Funds flow out of high-risk assets like stocks and cryptocurrencies into safer assets such as US Treasuries, the US dollar, and gold. US long-term bonds have always been viewed as top global safe-haven assets; large capital outflows from equities push bond prices higher and yields lower. Gold, as a traditional safe haven, is bought during stock crashes to hedge against uncertainty. The dollar, during global panic, is the ultimate safe-haven currency; investors sell emerging market assets to buy back dollars, pushing the USD higher.

As for commodities, they usually fall along with stocks because economic slowdown means reduced demand. But if the stock decline is caused by geopolitical supply disruptions, oil prices might actually rise. Cryptocurrencies in recent years behave more like tech stocks; during US stock crashes, investors tend to sell crypto assets for cash.

Looking back at major US stock crashes in history, the patterns are quite similar. The 1929 Great Depression was caused by leverage bubbles bursting and trade wars; Black Monday in 1987 was driven by algorithmic trading and monetary policy shifts; the dot-com bubble burst in 2000 was the final straw after Fed rate hikes; the 2008 subprime crisis stemmed from the housing bubble and the spread of financial derivatives risk; the COVID-19 crash in 2020 was quickly stabilized by the Fed’s intervention; the 2022 bear market driven by rate hikes was the Fed’s aggressive move to control high inflation; and the recent 2025 Trump tariff shocks directly overturned global trade rules.

Regarding strategies, I suggest the following. First, increase defensive asset allocation in your portfolio—lock in quality corporate or government bonds at appropriate levels, or allocate some inflation-linked assets. Second, pay attention to the weight of tech stocks; if AI-related stocks are overvalued, diversify risk into defensive sectors like utilities and healthcare. Third, hedge risks using CFD, options, or inverse ETFs to prepare for potential extreme declines. Lastly, keep some cash on hand; when market direction is unclear, holding cash allows you to buy cheaper when the market is oversold.

In essence, rather than trying to precisely predict bottoms or chase highs, it’s better to focus on fundamentals—review your risk tolerance and asset allocation for balance. Moderately increase defensive assets, diversify away from concentrated tech holdings, utilize hedging tools effectively, and keep cash reserves to seize opportunities. These are relatively prudent approaches amid extreme volatility. The importance of risk management is no less than the pursuit of returns.