"Knives are falling everywhere, $64 trillion goes up in smoke," traders fear the market "big crash" has just begun

After global stock markets suffered heavy losses, traders are worried that the "big crash" has just begun.

On August 6th, traders speculated that market panic could lead to a malfunction of the financial system, a slowdown in lending, ultimately pushing the global economy into a recession. Wall Street analysts predict that the Federal Reserve may need to cut interest rates urgently to address the crisis.

Almost no one believes that the market has bottomed out. Vishnu Varathan, the head of economics and strategy at Mizuho Bank, said that traders believe trying to buy falling assets at the right time is like trying to catch a falling knife, and today "there are falling knives everywhere."

Global stock markets have evaporated $6.4 trillion in three weeks, key assumptions for growth shaken

On Monday, global stock markets collapsed, with the Nikkei 225 and TOPIX indices both plummeting over 12%, South Korea experiencing its largest drop since 2008, and the S&P Dow Jones seeing its deepest decline in two years, with NVIDIA dropping 15% at one point...

"It's like a replay of the 1987 Black Monday," said veteran market and economic observer Ed Yardeni, recalling the sudden crash of the market in 1987 when the Dow Jones Industrial Average fell 23% in a single day.

Signs of a stock market decline have been evident in the past few weeks. Calculations show that global stock markets have evaporated about $6.4 trillion in just three weeks.

The current market panic has created a series of risks. Traders point out that if stock selling is not stopped in time, it could disrupt the financial system, slow down lending, and become the final straw to push the global economy into a recession.

Investors realize that key assumptions supporting the rise in stock markets have been shaken, such as the strong U.S. economy, AI rapidly changing business models worldwide, Japan not raising interest rates as expected, and more.

However, weak economic data in the U.S. in July and disappointing financial reports from large tech companies have shocked the market. Meanwhile, Japan has already raised interest rates twice this year.

This series of blows has made investors suddenly realize the risks involved in pushing up NVIDIA's stock price 11 times in less than two years, or heavily investing in junk-grade loans packaged as bonds, or engaging in yen carry trades... These actions themselves carry risks.

Against this backdrop, global rate cut bets have surged, with the market even pricing in an emergency rate cut by the Federal Reserve to "rescue the market". Some aggressive analyses suggest that there is a 60% chance of a 25 basis point rate cut within a week before the September meeting of the Federal Reserve.

VIX panic index soars, concerns are far from over

On August 5th local time, the VIX panic index broke months of calm and surged to 65 intraday, marking the largest intraday increase since data records began in 1990. However, it later fell back to around the 40 level

Mizuho Bank analyst Shoki Omori expressed surprise at the scale of the stock sell-off and is preparing for significant market volatility. "This has shattered all my expectations," he said. "We are entering some unimaginable trading territory. Be prepared for more."

The intense volatility in global stock markets on Monday has spread to other Asian, European, and American markets, even penetrating the credit markets. As a result, two U.S. companies have postponed a total of $3.8 billion in loan transactions - wireless infrastructure provider SBA Communications and theme park operator SeaWorld Parks & Entertainment.

Although stocks rebounded from their lows towards the end of the U.S. trading session, the Nasdaq Composite Index fell by 3.4% and the bond market showed initial signs of stabilizing. However, this has had little effect on calming nervous traders, suggesting that this may not be a false alarm.

Few believe that the market has hit bottom. Maley, a strategist at Miller Tabak, still expresses concerns about market trends, saying, "We are still concerned about earnings and the economy."

It remains uncertain whether the global market turmoil signals the final stage of the global sell-off that began last week or if it is just the beginning of a long-term decline. The current market is digesting multiple risk factors, and there may be more volatility in the coming weeks