Strange Contrast: Why Does the U.S. Economy Seem Strong While Global Assets Dive Collectively?

Recently, the market conditions in the global capital markets have left many investors exclaiming 'I don't understand' and 'too anxious.'

On one side, the various economic data officially released by the United States all indicate 'strength'—employment, consumption, output, and other core indicators are performing well, making it seem like the U.S. economy is steadily moving in a positive direction; but on the other side, the global capital markets have experienced a ' indiscriminate crash,' with U.S. stocks, gold, the Nikkei index, commodities, and even cryptocurrencies, nearly all notable assets are plummeting simultaneously, and panic is spreading like a tide, momentarily making people feel as if they have returned to the dark times of the financial crisis.

Some say it is due to the Middle East geopolitical conflicts, some say it is the comments of former U.S. President Trump causing trouble, and others worry that this is a long-gestating systemic risk finally erupting. Today, we will use the most straightforward language to peel back the layers of truth behind this global asset crash.

First, look at the surface: those visible "triggers".

Any market crash is bound to have direct "triggers"; this round is no exception, with the most obvious being geopolitical conflict, Trump's comments, and the "trust crisis" of tech giants.

First is the tension in geopolitical relations. The situation in the Middle East has been tense recently, with no signs of easing; such uncertainty is most likely to trigger the market's "risk-averse sentiment" – everyone fears that an uncontrollable situation will affect the global supply chain and push up energy prices. Thus, initially, everyone thought of buying traditional safe-haven assets like gold and silver, which also led to gold and silver refreshing price highs before the crash, reflecting the most intuitive manifestation of market risk-averse sentiment. Interestingly, later on, gold also crashed, indicating that geopolitical conflict was merely an "appetizer" and not the real core reason.

Next is Trump's comments shock. His recent public statement of "not minding a weaker dollar" seems simple, but it directly triggered a sharp drop in the dollar index, reaching a new low in nearly two years. It is important to note that the global financial system has long relied on a "strong dollar"; when the dollar weakens, the layout of global capital will be disrupted, and many asset prices will also fluctuate, which is undoubtedly a double whammy for an already sensitive market.

But what is most worthy of attention is the "trust crisis" of tech giants. We all know that the rise of U.S. stocks in the past two years has largely been supported by MAG7 (the seven major U.S. tech giants), which acted as the "stabilizing force" of U.S. stocks. However, recently, the market's attitude toward these tech giants has changed – analysts have found that the forward price-to-earnings ratio of MAG7 is declining, meaning investors are no longer willing to give these tech giants "high valuations".

Specifically, during the latest earnings report season, the market's demands on tech giants have become exceptionally strict: if the performance barely exceeds expectations, it is regarded as "barely meeting standards"; if it significantly exceeds expectations, it is only equivalent to the previous "normal performance"; as long as there is a small detail in the earnings report that falls short of expectations, such as a slowdown in the growth of a certain business or an increase in R&D expenditures, the related stocks will experience a sharp decline.

Reflected in the market, MAG7 has led the Nasdaq index to stay flat at high levels for several months, no longer exhibiting the previous soaring momentum. According to recent market data, the ETF tracking MAG7 (code MAGS) has dropped from around $66 in early February 2026 to $63.58 on February 10, plummeting nearly 4% in just one week. This has been interpreted by the market as: the epic rally led by MAG7 in May 2023 has begun to fade, and the main line of the market is gradually shifting from tech leaders to sectors like storage, semiconductor equipment, precious metals, industrial metals, and energy.

Digging deeper: tightening liquidity is the real "culprit".

If the visible triggers are considered "accidental," then the deeper tightening of liquidity is the "inevitable" cause of this round of crash and is also the most core reason – simply put, the "money" in the market has become less, and everyone is exchanging cash without regard to cost.

Here, we don't need to get tangled up in complicated financial terms; we just need to remember one key indicator: the spread between SOFR (Secured Overnight Financing Rate) and IORB (Interest on Reserve Balances). The difference between these two rates is a "barometer" for judging the liquidity tightness of the banking system. An expanded spread means it has become more difficult for banks to borrow from each other, and the "money" in the market becomes tight.

According to recent data, the spread between SOFR and IORB has expanded to over 14 basis points, reaching a high point not seen since the liquidity crisis during the 2020 pandemic. This indicates that the liquidity of the current banking system has shifted from "abundant" to "scarce," and bank reserves have remained low, making the entire market resemble a "water-scarce funding pool."

Adding insult to injury is that the new vice-chairman of the Federal Reserve, Kevin Warsh, has consistently advocated for advancing the "balance sheet reduction" plan – simply put, balance sheet reduction means the Federal Reserve sells off the assets it previously bought, "sucking water" from the market and reducing the money supply. The market is already "lacking water"; if forced to reduce the balance sheet, it is equivalent to drawing more water from a drying pool, further tightening liquidity.

Although balance sheet reduction has not yet been formally and massively advanced, the "expectation of balance sheet reduction" itself has already had a substantial impact on the capital market. The expectation of balance sheet reduction has pushed up long-term treasury yields, while the U.S. 30-year fixed mortgage rate is highly correlated with the 10-year treasury yield. This has caused mortgage rates to rise sharply, possibly reaching 7%-8%, directly freezing the U.S. real estate market – homebuyers can no longer afford houses, transaction volumes have plummeted, and asset prices related to real estate have also fallen.

Under this expectation of "tightening liquidity," global capital has entered an "indiscriminate selling" mode: people no longer care about the type or valuation of assets; whether it is stocks or gold, whether it is commodities or cryptocurrencies, as long as it can be converted into cash (especially U.S. dollars), they rush to sell. This is not merely a simple "take the profits and run" or a closure of dollar arbitrage trades, but a true "liquidity crisis" – funds have not disappeared into thin air; they have merely retreated from all risk assets and flowed into the safest and most liquid U.S. dollar cash.

Ultimately, the underlying concern here is about "fiscal sustainability": the market is beginning to realize that the current economic issues cannot be resolved by the Federal Reserve cutting interest rates; the root lies in fiscal policy itself. This concern, in turn, has triggered a "risk appetite retreat" in global capital, and people no longer dare to take risks, only wanting to hold cash. This is the core logic behind this round of global asset crash.

Comparing history: this round of crash is different from "312" and "519".

Seeing this crash, many seasoned investors will think of the "312" crash in 2020 and the "519" crash in 2021, inevitably worrying about history repeating itself. But in fact, the driving logic behind these three crashes differs fundamentally, and a simple comparison makes this clear.

The "312" crash in 2020: the core reason was the global pandemic of COVID-19, which belonged to a global liquidity crisis. At that time, the pandemic suddenly broke out, leading to global lockdowns and economic standstill. Investors madly sold all assets to get U.S. dollar cash; Bitcoin alone dropped over 50% within 24 hours, which was a grim sight. The underlying logic of this round of crash is highly similar to "312"; both are due to tightening macro liquidity, and everyone is selling off all risk assets to fill the liquidity gap.

The "519" crash in 2021: the core reason was the tightening of domestic cryptocurrency regulatory policies, which belonged to an industry-specific and regional risk event. At that time, the main downturn occurred in the cryptocurrency field, while other assets like stocks and gold were hardly affected, and the impact range was very limited – just like in May 2021, Bitcoin dropped directly from $58,000, plummeting over $10,000 within 24 hours, with a total liquidation amount exceeding $5.87 billion, but U.S. stocks and commodities were hardly affected.

The uniqueness of this round of crash is that it is "global and across all asset classes"; whether it is safe-haven assets (gold) or risk assets (stocks, cryptocurrencies), none have been spared. Especially cryptocurrencies, as the "tail end" of risk assets, have experienced the most severe impact, recently even dropping below the $75000 mark. More worryingly, this round of cryptocurrency bull market is closely related to the policy friendliness after Trump took office, but his comments are always filled with uncertainty. In the current fragile market, any negative comment could trigger an industry-wide crash similar to "519".

Seeing through the essence: the market has changed, and the AI narrative has "cooled off".

In summary, this round of collective decline in global assets cannot be explained merely by surface factors such as geopolitical conflicts or Trump's comments; the core issue is that the "rules of the game" in global capital markets have changed, which we commonly refer to as a "market paradigm shift."

Looking back at the epic market trend that began in May 2023, what is the core logic? It is the narrative of the "AI revolution" and "ever-growing tech stocks" – everyone believes that AI will completely change the world, and tech giants will continue to profit and rise, so they are willing to give them extremely high valuations, even if their R&D expenses and capital expenditures continue to increase, they still feel it is "worth it".

However, now this narrative has been widely questioned by the market. Investors are beginning to calm down and re-examine the high capital expenditures of tech giants: after spending so much money on R&D and expanding capacity, can it really translate into tangible performance returns? If not, the previous high valuations are merely "castles in the air" and will eventually collapse. This is also why the price-to-earnings ratio of MAG7 has started to decline, and the main line of the market is beginning to shift.

At the same time, the long-term treasury bond market has also released a clear signal: the issue of fiscal sustainability has transformed from a previous "theoretical discussion" into a concrete market risk. People are slowly realizing that the current bright performance of the U.S. economy may have reached the "peak" of this economic cycle – in other words, economic growth may slow down or even decline, and interest rate cuts cannot solve the fundamental problem because the root of the issue lies not in monetary policy, but in fiscal policy itself.

Therefore, this round of cryptocurrency crash is just the beginning of market adjustments, not the end. Cryptocurrencies, as a typical representative of risk assets, are the first to be sold off, but next, those assets with overvaluations and no performance support are likely to continue adjusting.

A practical word for investors.

For ordinary investors, what should be done now is not to panic sell or blindly bottom fish, but to re-examine their asset allocation strategy.

Historical experience tells us that at the end of each panic sell-off in the market, real value depressions will emerge – those assets with solid performance, reasonable valuations, and core competitiveness will ultimately emerge from the low point. But the premise is that you must retain enough cash reserves to survive this panic period, and only when the market stabilizes and sentiment warms up can you seize opportunities.

Finally, I want to say that the capital market has never had an "eternal bull market," nor an "eternal bear market"; volatility itself is the norm of the market. Rather than being disturbed by short-term crashes, it is better to calm down, see the core logic of the market clearly, and respond rationally – after all, in investment, "surviving" is more important than anything else.

Disclaimer: The content of this article is for reference only and does not constitute any investment advice. Investors should view cryptocurrency investments rationally according to their own risk tolerance and investment goals, and should not blindly follow the trend.