Many people now believe that the Federal Reserve has entered a loosening cycle, not only starting to cut interest rates but even buying short-term U.S. Treasuries, which is equivalent to QE.
Therefore, they conclude:
U.S. stocks cannot plummet significantly; the crypto market is currently just in a consolidation phase and cannot enter a bear market.
But the core issue with these viewpoints is that they fail to see the risks accumulated during the high interest rate cycle, which have never truly disappeared.
The cost of corporate debt remains high, and the pressure on the real estate industry still exists; these structural risks are only temporarily covered, not resolved.
The reason everything seems fine now is simply because the AI craze, this grand narrative, has temporarily covered up and dulled the market. If the U.S. didn't have AI to support this narrative, it is very likely that we would have already been on the brink of economic recession.
Once we really enter a recession, or even just show signs of a recession, the core valuation foundation of the U.S. stock market, which is corporate earnings, will face the most direct impact.
Even just 'speculating on recession' is enough to ignite the market's risk aversion and selling sentiment. This, in itself, is the beginning of a horror story. When sell-offs start to concentrate, even the strongest companies can be smashed into deep pits.
What’s even more interesting and cruel is that many people actually cannot comprehend this:
Market capitalization is essentially just a layer of paper.
Under the panic triggered by black swans, the market can enter a very deadly state:
Sell orders surge instantly, but buy orders are extremely thin. Liquidity can be easily breached directly, and a crash is not a 'price correction' but an 'out-of-control descent.' In fear, humanity can only see what is in front of them.
Even some smarter veterans, who can see the unfolding story, will choose to wait a bit longer to see if they can buy at a cheaper price. But it is precisely in the process where everyone chooses to wait that free fall happens.
In fact, the current 'liquidity easing' speculative script is nearing its end. The market's expectations for interest rate cuts and QE have already been fully, even excessively priced in.
The clue of economic recession has been temporarily hidden under the strong hedging of AI. But you must remember one thing: AI must also deliver results.
Once the growth story of AI cannot continuously 'exceed expectations,' the market will face the darkest moment where both narratives collapse simultaneously.
What’s most deadly is that the price is at a high level. The price being at a high level is itself the most sufficient reason for a crash.
You can think of it this way:
All optimistic sentiments have already been injected into the price. What does this mean?
This means that any slight disturbance will leave the market with only one direction: downwards, seeking support.
If you truly understand all of this, you will realize why I keep emphasizing: for the stock market and cryptocurrencies, which are already at high levels, do not enter if there is no major drop.
This is the ultimate reverence for financial cycles and human weaknesses.
