Some thoughts about market decline

Japan raised interest rates too early, and the United States cut interest rates too late, which I think is the biggest reason of the market decline.

Economic development is not linear. Just as Powell’s interest rate hike cycle lagged behind the economic situation, his interest rate cut cycle will highly likely lag behind due to his cautious personality, excessive focus on data, and fear of making mistakes with inflation again.

Powell didn’t cut rates when the unemployment rate reached 4.1% last month, and now it has increased to 4.3%.

Japan only raised rates by a little bit; why did the market react so strongly?

Japan used to have negative interest rates. If you borrowed money from Japan, you would actually get paid. Many borrowed money from Japan to speculate in US stocks and other investments. The amount of these funds was shockingly high. So, even a slight change in Japan's rates can cause huge market fluctuations.

It is often said that the United States and Japan have an unspoken mutual understanding on interest rates, with one lowering rates while the other raises them to stabilize the market. But now, the United States has no intention of lowering interest rates yet, and Japan has raised its rates hastily.

The second big factor is the central bank of Japan.

There have been many market declines caused by slow interest rate cuts in history. Do you think they are really stupid? I don't think so. Sometimes they themselves don't know how fast the domino effect of the market can be. In the financial market, a single move can affect the whole system.