Why Did Global Stocks Crash?

Three factors combined to trigger Monday's global stock market crash: the unwinding of yen carry trades, rising U.S. recession fears, and Buffett's massive sell-off of heavy stocks. Wall Street believes the Fed will inevitably cut rates this year but expects limited cuts while seeing opportunities in the bond market. They forecast further declines in stocks in the near term, with the dollar expected to fall below 145 yen.

Bank of America advises investors to decisively sell their assets when the Fed makes its first rate cut. Hartnett argues that market expectations for rate cuts are overly optimistic, ignoring the diminishing impact of fiscal stimulus. After years of stimulus, the economy is "numb," and the rate cuts needed to stimulate the economy are greater than expected, leading to a "harder landing" after the Fed's first rate cut.

JPMorgan warns against bottom-fishing, suggesting that fighting inertia is unwise. Andrew Tyler believes the recent market moves may be exaggerated, with the actual economic situation stronger than risk asset trends suggest. Investors might consider shifting to tactical market neutrality or leaning toward net short positions.

Many analysts believe Buffett's reduction of Apple shares is more about risk management than doubting Apple's long-term prospects. Apple's strong financial position and upcoming AI upgrade cycle mean it remains attractive in the long run.

Guotai Junan Securities notes that the sharp decline in U.S. stocks led by the tech sector, the weakening dollar, the continuous appreciation of the yen, and the surge in the yuan indicate a massive reverse unwinding of carry trades. Other analysts point out that the initial sell-off of carry trade positions was triggered by the Bank of Japan's rate hike, but global economic growth concerns have further fueled the sharp moves in recent days. The sudden appreciation of funding currencies has damaged carry trade strategies, leading to a "great unwind" globally.