Last night,the U.S.stock market experienced a brutal downturn that left many investors reeling.By the time the closing bell rang,the Dow Jones Industrial Average had plummeted by a staggering 3.12%,a fall that felt like a heavy blow to the confidence of those trading on Wall Street.The situation was even worse for the Nasdaq Composite Index,which saw a catastrophic decline of 4.99%.This significant drop saw numerous technology stocks lose substantial value,while the S&P 500 Index followed suit,plunging by 3.56%.For investors who have grown accustomed to the long-lasting bull market,this dramatic downturn served as a stark reminder of the market’s unforgiving nature.It was a day reminiscent of the sharp drops once endured in the A-share market,where a 5% fall in a single day sent shivers through many.

Amidst this turmoil,various rumors began to circulate rapidly.Speculation about President Biden resigning,alongside claims regarding his son being arrested at a steel plant,started to flood the news.While the validity of such claims is questionable—after all,a mere arrest wouldn't normally cause such a market crash—it does illustrate how jittery investors can be regarding any potential negative news.However,it is crucial to understand that the U.S.stock market is not as fragile as people may perceive.

At the heart of this significant market drop appears to be the harsh reality that a bear market is now upon us.It's not unusual for the markets to descend sharply during such a phase.Since the dawn of the 21st century,U.S.markets have witnessed their fair share of highs and lows,from the bursting of the tech bubble in 2000 to the financial crisis in 2008.Following these turbulent times,an extended period of bull markets flourished for over a decade.But history proves it is inevitable for a major bear market to eventually unfold.

If we look closely at the immediate causes of this significant downturn,it is evident that the market's tumult is rooted in fundamental economic issues,rather than mere gossip.The U.S.economy currently finds itself in a tricky area,grappling with high inflation and diminished momentum for economic recovery,leading to a phenomenon known as stagflation.Recent data reveals emerging signs of recession,yet high inflation compels the Federal Reserve to increase interest rates,potentially driving the economy into a deeper recession.This cycle seems destined to lead to a deadlock within the bear market.Since peaking on November 22 of last year,the Nasdaq has already fallen by 23%,entering what is recognized as a technical bear market.

Analyses of the U.S.economy's performance show a complex picture: while the GDP growth for the first quarter soared by 4.3% year-on-year,it contrasted sharply with a quarterly annualized decline of 1.4%.This disparity highlights growing fragility and instability within the economy.Moreover,the ADP employment report released on Wednesday sounded alarms for the current economic situation.Although hiring continues to move forward,there has been a stark underperformance in job creation compared to expectations.

The report specified that in April,ADP employment saw only a modest increase of 247,000 jobs—far below the anticipated 390,000 set by Dow Jones,and even shy of the revised upward figure of 479,000 jobs added in March.Employment data stands as a critical leading indicator of economic health,and its disappointing results signal a gradual decline in the vitality of the U.S.economy.

Further supporting these findings,a recent release from the Labor Department revealed that initial unemployment claims for the week ending April 30 totaled 200,000—marking the highest level since February 12,2022.This number surpassed the expected figure of 182,000 and climbed from the previous week’s 180,000.

These various reports collectively indicate the early signs of an economic downturn in the U.S.,and looking at the performance of major technology companies listed on the Nasdaq,most have underperformed compared to expectations—a worrisome sign of looming recession risks.

Examining liquidity provides another angle into the situation.Many may not realize that despite the recent inversion of the U.S.-China ten-year treasury yields,U.S.real interest rates have long been negative.Borrowing money had virtually no real cost,but following two recent increases by the Federal Reserve,real interest rates (as measured by TIPS 10Y) are turning positive.This shift marks a pivotal moment that is likely to severely suppress speculative activities and capital expenditures.The stock market fundamentally serves as a barometer of liquidity; thus,as liquidity tightens,sharp declines become increasingly commonplace.

In my view,the U.S.stock market is at the tail end of a substantial cycle.Just as any thriving era prepares for decline—often accompanied by chaos—the financial markets are no exception.As the bull market reaches its twilight,we witness an uptick in unpredictable 'black swan' events and 'grey rhino' scenarios where the looming risk becomes apparent.The intertwining and interaction of these unforeseen events and potential risks significantly heighten market volatility and foster investor panic,crafting an atmosphere where forecasting and strategizing around the stock market becomes exceedingly challenging.

Turning our focus to the Chinese stock market,it seems that A-shares have already been lagging this year,marking low global performance amidst preemptive risk management.The external shocks may be comparatively limited; rather,the core issues lie within domestic economic challenges.Certainly,if the U.S.economy does indeed plunge into a profound recession equivalent to a tech bubble burst or financial crisis,the A-share market will not remain isolated from such an upheaval.