Investor fear, not the U.S.-China trade war, has driven a historic $5.5 trillion market crash since February, with the S&P 500 losing $4.5 trillion and crypto shedding $1 trillion. Experts warn of heightened volatility ahead.
Global Markets Plunge Amid Rapid Sentiment Shift
Investor sentiment, not the U.S.-China trade war, has triggered a staggering $5.5 trillion market collapse since mid-February, according to an analysis by The Kobeissi Letter. The downturn saw the S&P 500 lose $4.5 trillion in value, while cryptocurrency markets shed another $1 trillion in a matter of weeks.
Extreme Fear Replaces Extreme Greed
Kobeissi’s analysis highlights a rapid shift from “extreme greed” to “extreme fear” as the primary driver of the sell-off. “Sentiment is the ultimate driver of price in ANY market, regardless of fundamentals,” Kobeissi stated in a social media thread, pointing to fear-and-greed indices that plunged to their lowest levels since 2022.
Despite long-standing trade tensions, markets surged to record highs in late 2024 and early 2025 before sharply reversing on February 20. Institutional investors began reducing exposure to high-growth stocks, with hedge funds cutting holdings in major tech equities to a 22-month low before the downturn.
Crypto Mirrors Traditional Market Declines
Cryptocurrencies followed a similar trajectory, shedding $1 trillion despite favorable policy developments. Kobeissi noted that institutional investors built record short positions on Ethereum by February 9, while retail traders rushed into crypto on speculation about a U.S. Bitcoin Reserve. “Even the U.S. Bitcoin Reserve became a ‘sell the news’ event,” the report stated.
Massive Outflows Deepen Market Losses
Outflows from crypto funds hit a weekly record of $2.6 billion in late February. Meanwhile, U.S. small- and mid-cap funds lost $3.5 billion and $2.1 billion, respectively, with tech sector funds seeing $1.9 billion in withdrawals in a single week.
Market Volatility Expected to Intensify
With the VIX volatility index surging 70% in a month, Kobeissi warns that daily 1,000-point swings in the Dow Jones Industrial Average could become routine. The analysis advises investors to closely track sentiment shifts, concluding: “Getting ahead of shifts in sentiment will be the most profitable strategy of 2025.”
For investors seeking to navigate the volatility, understanding market sentiment will be critical in the months ahead. Follow us on X for daily news updates.
