Author: Ji Zhenyu, Tencent News 'First Line'
Trump's tariff policy continues to threaten the US stock market, and during this process, investor confidence is being constantly eroded, with occasional market hopes ruthlessly extinguished. Entering April, the US financial market experienced a historically rare situation, with equity markets, bond markets, and the US dollar all experiencing sell-offs without exception.
"This is no longer a normal rotation of funds, but an overall withdrawal," a US hedge fund manager told Tencent News 'First Line'.
On April 21 US time, such a situation played out again in the US financial market. The three major US stock indexes plummeted at the opening and continued to fall throughout the day, while US Treasury yields continued to rise, the US dollar continued to decline, and gold continued to hit new historical highs.
This hedge fund manager said, "From the market's behavior, investors are losing trust and patience with the United States."
Previously, on April 2, US President Trump announced a comprehensive reciprocal tariff policy, with a policy intensity and scope that almost exceeded the most pessimistic expectations and scenario assumptions of all market participants and research institutions. Subsequently, related US assets experienced multiple rounds of sell-offs, not just stocks, but also the US dollar and US Treasury bonds across the board.
The hedge fund manager stated that in his interactions with European clients, he could clearly feel this attitude change. A few months ago, some large European funds had begun preliminary discussions about "diversifying" US dollar assets, as European stock markets were rising, and due to "animal spirit", people's attention was naturally drawn there. However, such preliminary discussions were immediately suppressed by more rational voices internally.
For at least the past 15 years, investing in US dollar-related assets had brought them substantial investment returns, and switching easily was not a mature and rational approach, especially for large-scale funds.
However, since entering April, the previous "preliminary discussions" no longer face internal resistance, and these large funds are seriously considering the possibility of withdrawing funds from the United States.
"Such a situation is so rare," the hedge fund manager said, "What can be recalled are events like the 2001, 1998, and 2008 financial crises before, which had a triggering event for systemic risk, such as the internet bubble or real estate bubble."
In his view, a simultaneous decline in stocks, bonds, and exchange rates was a situation that often occurred during crises in emerging market countries, but unexpectedly, the United States, as the most mature and developed financial market, has recently experienced such a situation.
Traditionally, the US dollar and US Treasury bonds were global safe-haven assets. Once a market crisis emerged, funds would rush to the US dollar and US Treasury bonds, causing US Treasury bonds and the US dollar to rise. However, this year, the financial market crisis initiated in the United States and brewed by Trump has forced funds to seek new safe-haven channels, such as cash or even the euro. This year, the euro has risen nearly 20% against the US dollar, and Switzerland's 2-year government bond yield temporarily turned negative, meaning investors are even willing to pay a fee to the Swiss government to protect their funds.
Many phenomena recently occurring in the US financial market have subverted the understanding of many professional investors.
"I can accept the US dollar falling and US stocks falling, but what I find hard to accept is that all asset categories are falling indiscriminately, with the United States becoming like an emerging market country, which far exceeds my investment experience over the years," the hedge fund manager said.
He stated that the panic sell-off occurring in the market in the short term is not what he is most concerned about, because panic sell-offs are more driven by short-term irrational emotional factors, and the market will ultimately return to rationality and common sense. Therefore, panic sell-offs often bring new investment opportunities. However, in the recent situation of simultaneous stock, bond, and exchange rate declines in the US financial market, he observed more of an orderly fund withdrawal, without panic, but rather a rational, decisive, and unhesitating withdrawal.
The market on April 21 also reflected this situation, with the VIX index, which reflects market panic, dropping 2.23% that day.
"Foreign capital is running away, and US capital is deleveraging. That's what I can think of about the current market situation," the hedge fund manager said.
If the situation continues to deteriorate, the Federal Reserve will have to take action, just as during the 2008 financial crisis and the 2020 COVID-19 pandemic, but currently, the Federal Reserve still chooses to remain inactive.
The Federal Reserve's "uncooperative" stance has triggered continuous criticism from Trump. On the 21st, Trump directly pointed out that Fed Chairman Powell was acting too slowly and threatened to directly dismiss him from his chairman position. Powell also expressed a tough stance externally, stating that he would continue to serve until the end of his term in 2026.
The public manifestation of conflict between the US President and the Federal Reserve Chairman further damaged market and investor confidence. Evercore ISI Vice Chairman Krishna Guha said in a CNBC interview on Monday that if Trump tries to dismiss Fed Chairman Powell, it could trigger a massive sell-off in US stocks.
Guha stated: "If questions about the Federal Reserve's independence begin, it will raise the threshold for interest rate cuts. If there is a real attempt to remove the Federal Reserve Chairman, I believe the market will have a violent reaction - yields will rise, the dollar will depreciate, and the stock market will fall sharply."
"I can't believe this is the result the government wants to achieve," Guha said.
