Black Friday! The Fed isn’t stepping in to save the market

—Over the past year, the AI sector has almost only needed to prove one thing: its vision is big enough. Now, the market is starting to demand the second set of answers: where are the profits? Where is the payoff?

Black Friday:

Asian stocks tumbled sharply in the region, Japanese and Korean equities saw a major selloff, Asia chip stocks all declined together, and U.S. stock futures also showed no sign of stopping the slide. Other than the U.S. dollar, there are almost no assets rising.

First, what’s truly falling today isn’t the stock market—it’s “AI faith.” Investors are increasingly questioning whether this year’s AI-driven rally has been too fast and too strong. More and more investors doubt whether AI companies can keep investing wildly while also maintaining healthy balance sheets.

The most thought-provoking part is this— even a company like TSMC with such strong performance can’t rescue the stock price. Revenue is solid, profits are solid, and AI orders remain strong. Under the old market logic, this kind of earnings report should keep hitting new highs. Instead, its stock price has dropped sharply, and may be on track to post the biggest one-day decline since April 2025. Good news no longer helps—this is the Wall Street saying: buy the expectation, sell the fact.

Second, fortunately, while stocks are falling, the U.S. dollar, crude oil, and U.S. Treasury yields have not surged meaningfully, leaving the market a little room to breathe. The dollar is below the 101 level, U.S. crude oil is below $80, and the 10-year Treasury yield is below 4.6%. However, even though the 10-year Treasury yield has temporarily held around 4.55% and hasn’t kept soaring, it also hasn’t continued to fall. Capital still believes interest rates could stay at high levels for longer—this is also an important reason why tech stock valuations have begun to compress.

Third, the Fed is not saving the market. Even if U.S. stocks fell last night, even if this week’s CPI and PPI show inflation cooling, Fed officials’ remarks are still surprising.

Kansas City Fed Chair Schmid said inflation is still too high, and the time above the target level has been too long.

Dallas Fed Chair Logan, meanwhile, argued for moderate rate hikes to bring inflation down.

Even the Fed’s less frequently seen Vice Chair, Jefferson, said that if inflation doesn’t fall, the Fed should consider raising rates again.

These comments are key to understanding current liquidity. The Fed is in a “defensive wait-and-see” posture. They need to prevent financial conditions from becoming too loose by releasing expectations of further rate hikes (even if only as a verbal threat). Once inflation expectations get out of control, the cost of subsequent policy tightening will far exceed the current adjustment in asset prices.

Not letting the market celebrate early—this is essentially what the Fed has been doing all along.