Five Storms Converge, Is the U.S. Stock Market Hanging by a Thread?

Following the plunge in gold and silver, U.S. stocks are also under pressure. On February 2nd, Nasdaq futures fell nearly 1% in pre-market trading, the S&P 500 index has retreated 0.43% from its high, and the VIX fear index jumped to 17.44, indicating a clear shift towards caution in market sentiment.

From a technical perspective, the Nasdaq index has been oscillating at high levels for three months, forming a rising wedge pattern. Now, this key uptrend line has been effectively breached for the second time, dealing a significant blow to market confidence.

If tonight's daily closing price falls below the previous low, forming a 'Lower Low,' a larger-scale downtrend may begin.

Adding to market unease is the 'Epstein files' that continued to ferment over the past weekend. This batch of over 3 million pages of documents has implicated Kevin Warsh, the Trump administration's nominee for the next Federal Reserve Chair.

His name appeared on the guest email list for the 2010 'St. Barts Christmas Party.' This turns distant political gossip into a real risk hanging over the market.

Political Risk Escalation

Market panic stems first from a reassessment of policy uncertainty in the potential 'Trump 2.0' era. Warsh is a staunch hawk, and his nomination almost signals the end of the low-interest-rate era.

Warsh has long been an outspoken critic of the Fed, arguing the institution needs a 'regime change.' He publicly criticized the Fed for cutting rates by a full percentage point in 2024 when inflation was above target, and then hesitating afterward, damaging its credibility.

Kevin Warsh, the Trump administration's nominee for the next Federal Reserve Chair

Warsh's core view is that the Fed's massive balance sheet distorts the healthy functioning of the economy and fuels asset bubbles. He advocates for shrinking the balance sheet, even if it requires tightening policies. This combination of 'hawkish rate cuts' has markets worried about a sharp future tightening of monetary policy.

The release of the Epstein files exposes massive, unpredictable political risk to the market. While there is currently no evidence Warsh engaged in illegal activities, his name being linked to this century's scandal itself constitutes a significant political liability, making an already controversial nomination even more difficult.

Furthermore, the uncertainty surrounding the Trump administration's signature tariff policies also worries the market. If a new round of tariffs expands in scope, it could not only hurt consumer confidence and corporate profits but also potentially inflate the already massive fiscal deficit.

It is predicted that the U.S. fiscal deficit will reach $601 billion in just the first three months of 2026. This fiscal outlook, combined with the political trust crisis exposed by the Epstein files, creates an extremely fragile market environment.

Global Markets and Commodities 'Bloodbath'

The commodity market was the first to trigger a 'long squeeze' stampede. Traditional safe-haven assets like gold and silver suffered an epic crash, with gold prices falling up to 12% and silver plummeting 36%. Following a single-day ETF trading volume of 30B, silver recorded its largest single-day drop since 1980, with highly leveraged long positions being liquidated en masse in a short time.

As prices fell, the Chicago Mercantile Exchange (CME) quickly raised margin requirements for gold and silver futures. For example, the margin ratio for silver futures for non-high-risk accounts was raised from 11% to 15%. This forced many undercapitalized long traders to be liquidated, with selling pressure further crushing prices, creating a vicious cycle. According to statistics, liquidations for tokenized futures alone amounted to $140 million within 24 hours.

CME issued a notice raising the margin ratio from 11% to 15%

The storm also spread domestically. Several gold shops in Shenzhen's Shuibei district 'blew up' due to participating in unlicensed gold futures betting, with involved amounts potentially reaching tens of billions of yuan, affecting thousands of investors.

Oil prices were not spared either, falling 5.51% to $61.62 per barrel. Weakness in Asian stock markets had already sounded the alarm, with the Nikkei index falling 1.11% and the Hang Seng Index plunging 3.15%. Bitcoin, a barometer for risk assets, also broke below the psychological $75,000 level. Behind this series of chain reactions may be a global deleveraging event unfolding.

When investors are forced to liquidate positions in one market (e.g., commodity futures) due to high leverage, they have to sell assets in other markets (e.g., Asian stocks, Bitcoin) to raise margin, triggering cross-market risk contagion. If this liquidity crunch persists, the next target for selling could be U.S. stocks, which are currently at high valuations.

Economic Data and the AI Bubble

Cracks in the economic foundation are also becoming clearer. The upcoming employment report is a key focus for the market. If the data shows an unexpectedly cooling labor market, fears of a recession will rapidly intensify. The Fed currently holds rates steady, but facing persistently high inflation, its policy space is extremely limited. If inflation does not retreat as expected, future rate hikes will be inevitable.

The yield on the 10-year U.S. Treasury note has climbed to 4.218%, and the massive annual interest payments the U.S. government must make on its debt further worsen the fiscal situation. Historically, an inverted yield curve has been a reliable leading indicator of recession multiple times, and the market is once again approaching this dangerous edge.

Historical trend of total U.S. Treasury interest payments, currently exceeding $1 trillion

Meanwhile, the AI narrative that fueled the market boom in 2025 is also showing cracks. The recent weakness in the Nasdaq, especially with software stocks becoming the most oversold sector in the S&P 500, indicates that market frenzy for AI is cooling.

Investors are beginning to realize that the commercialization and profit realization of AI will be far more prolonged and difficult than imagined.

The upcoming corporate earnings season, particularly the financial reports from tech giants like Amazon and Alphabet, will serve as the 'touchstone' for testing AI's true value. If earnings fall short of expectations, a large-scale sell-off may be hard to avoid.

The Ghost of 1979

The current geopolitical and macroeconomic environment bears a striking resemblance to 1979, unsettling many seasoned investors.

1979 marked the end of the Cold War détente. In December of that year, the Soviet invasion of Afghanistan led to a sharp deterioration in U.S.-Soviet relations, pushing global geopolitical tensions to a peak.

Almost simultaneously, the Iranian Revolution triggered the second oil crisis, causing oil prices to soar and plunging the global economy into the quagmire of 'stagflation' (economic stagnation coupled with high inflation). At that time, the Fed, under political pressure, failed to take decisive action promptly, leading to runaway inflation. It ultimately required new Chairman Paul Volcker's 'shock therapy' of sharp interest rate hikes to contain it, but at the cost of a deep economic recession.

Today, we face a similar situation: heightened Middle East geopolitical tensions. According to data from prediction market Polymarket, as of February 2nd, the market's perceived probability of a U.S. strike on Iran before the end of the month has risen to 31%, with insider whales placing huge bets on Khamenei's ouster.

Polymarket insider whales heavily increased bets on Khamenei's ouster, total wager $336.7k | Source: Polybeats

Meanwhile, energy prices are highly volatile, and global inflationary pressures remain elevated. The potential interference of the Trump administration with Fed independence, along with the nomination of hawkish figure Warsh, evokes memories of the risk of policy missteps under political pressure back then.

If history repeats, aggressive tightening policies adopted to control inflation could end this bull market sustained by artificial means, triggering a crisis of confidence in the U.S. dollar and leading to a significant correction in U.S. stocks similar to the late 1970s and early 1980s.

For investors who charged ahead during the 2025狂欢 (carnival), now may be the time to reassess risks and prepare for potential market turbulence.