U.S. stocks suffered a heavy blow on Thursday, with the three major indices collectively posting their worst performance since October 10.
The Dow plummeted over 700 points, the S&P 500 fell nearly 1.7%, and the Nasdaq briefly dropped below its 50-day moving average.
Technology stocks became the core of the sell-off: Tesla plunged 7%, NVIDIA and Broadcom both slumped 5%, while Disney fell nearly 8% due to weak earnings reports.
The Nasdaq Technology ETF fell more than 3%; the S&P ETF, Nasdaq ETF, Nasdaq Index ETF, Nasdaq 100 Index ETF, Nasdaq 100 ETF, Fortune SG Nasdaq 100 ETF, E Fund Nasdaq 100 ETF, China Southern S&P 500 ETF, and DJIA ETF all declined by over 2%.
From a valuation perspective, the major U.S. stock indices are all trading at high levels.
By the end of the third quarter this year, Buffett’s cash reserves reached USD 381.67 billion, setting another historical record, and Berkshire Hathaway has not conducted any stock repurchases for nine consecutive months.
Renowned investor Duan Yongping recently stated in an interview: 'It's possible that Apple could double, triple, or even quadruple in value in the future. But I don’t know — it’s not to say it definitely won’t happen, but it’s not cheap.'
Moreover, the two key pillars supporting U.S. stocks — liquidity and interest rate expectations — simultaneously experienced significant volatility, triggering this round of declines.
First, the liquidity shortage has rapidly deteriorated.
The U.S. government shutdown lasted 44 days, freezing all funds that were supposed to enter the market through fiscal spending, causing the market gap to continually widen.
At the same time, the issuance of U.S. Treasury bonds increased in the short term, directly withdrawing a large amount of cash from the market, leading to a continued decline in bank system reserves: reduced lendable funds for banks, tightening financing conditions, and rising repo rates.
For the U.S. stock market, which heavily relies on low-cost financing, this is equivalent to removing part of the market's "oxygen." If reserves fall to excessively low levels, it may trigger passive deleveraging or even forced liquidation, thereby impacting the U.S. Treasury bond market, which serves as the pricing benchmark for the global financial system.
The latest data from Bank of America shows that hedge funds and other institutions have become the largest net sellers of stocks and ETFs, having net sold over $67 billion worth of U.S. equities this year, cutting positions while retreating, further amplifying liquidity pressures.
There are positive factors— the Federal Reserve announced that it would halt further balance sheet reduction (QT) starting December 1, and the U.S. Treasury also plans to reduce the issuance of Treasury bills. Once the U.S. government resumes operations, cash held in fiscal accounts will flow back into the market.
This means that the short-term funding crunch will gradually ease in the coming weeks. However, the market must endure the “vacuum period” before December, and volatility remains unavoidable. Especially at year-end, U.S. banks will reduce their activities in the repo market to compress their balance sheets, potentially creating another round of funding tensions.
The second source of pressure stems from a sudden shift in interest rate expectations. Just a day or two ago, the market still believed there was a more than 60% probability that the Federal Reserve would cut interest rates by 25 basis points in December (a month ago it was nearly 95%). However, the recent U.S. government shutdown prevented the release of key economic data, leaving the Fed cautious about easing policy in a “black box” environment.
Moreover, the internal hawk-dove divide within the Federal Reserve has escalated unusually. Boston Fed President Collins even suggested that maintaining higher interest rates would be more appropriate, with short-term rate cuts requiring a “higher threshold.” Several regional Fed officials expressed similar views, while some doves still advocate for faster easing.
The divergence of opinions has caused the market’s previously stable expectations of rate cuts to quickly collapse, with the probability of a rate cut plummeting from “almost certain” to “a fifty-fifty chance” in a short period.
The reversal of interest rate expectations has particularly hit technology stocks hard. The three consecutive days of declines in U.S. tech stocks this week were a result of this, with leading AI companies showing weakness. Investors, concerned about valuation bubbles in an unstable interest rate environment, opted to take profits. Some institutions even purchased $12.88 million worth of Tesla put options, gaining 40% in just a few hours. This short-term bearish force further fueled market volatility.
The key factor behind this round of declines in U.S. stocks is the dual impact of liquidity shortages and unstable interest rate expectations.
Liquidity determines whether the market can 'breathe,' while interest rates determine whether valuations hold up. When both are shaken simultaneously, the U.S. stock market faces contraction-driven volatility.
As the balance sheet reduction is set to halt in December alongside the return of fiscal funds, liquidity pressure will gradually ease. However, until policy direction becomes clearer, sentiment in the U.S. stock market will remain highly volatile.
Regarding the U.S. stock market, Founder Securities believes that earnings growth for the entire year of 2026 may reach 13.5%, with polarization potentially improving marginally: based on market expectations, full-year EPS growth for U.S. stocks in 2025 is projected at 12%, rising to 13.5% in 2026, driven by sustained AI momentum, reduced tariff risks, and accommodative monetary and fiscal policies. From an industry perspective, the polarization in U.S. stock profitability may improve marginally; TMT will continue to perform strongly, while midstream manufacturing and downstream consumer sectors are expected to stabilize and recover. Investment opportunities in U.S. stocks in 2026 may revolve around two main themes: first, the narrative around tech stocks remains ongoing, with high AI momentum likely to persist. However, given elevated valuation levels and market concentration, there is increasing scrutiny over the verifiability of the AI narrative; second, under tariff recovery and dual accommodation from monetary and fiscal policies, cyclical sectors are poised for a turnaround, with major opportunities lying in industrial and materials sectors within midstream manufacturing, essential consumption and real estate in downstream demand, and the pharmaceutical sector benefiting from marginal easing in Trump's policies.
