Funds are fleeing, and the U.S. is being sold off.

Author: Ji Zhenyu, Tencent News "Frontline"

Trump's tariff policy continues to threaten the U.S. stock market, during which investors' confidence is being eroded, and the occasional flicker of hope in the market is ruthlessly extinguished. As April begins, the U.S. financial market is experiencing a historically rare situation, with no exceptions: the equity market, bond market, and the dollar are all facing sell-offs.

"This is no longer a normal rotation of funds, but an overall withdrawal," a U.S. hedge fund manager told Tencent News "Frontline."

On April 21, U.S. time, this situation played out again in the U.S. financial market. On that day, the three major U.S. stock indices opened with a sharp decline and continued to fall throughout the day, while U.S. Treasury yields continued to rise, the dollar continued to weaken, and gold reached a new historical high.

The hedge fund manager said, "From the market's behavior, it is clear that investors are losing trust and patience with the U.S."

Previously, on April 2, President Trump announced a comprehensive reciprocal tariff policy, the scale and intensity of which exceeded the most pessimistic expectations and scenario assumptions of all market participants and research institutions. Subsequently, U.S. related assets experienced multiple rounds of sell-offs, not only in U.S. stocks but also in the dollar and U.S. Treasuries, all declining indiscriminately.

The hedge fund manager noted that during his interactions with European clients, he could clearly feel this change in attitude. A few months ago, some large European funds had begun preliminary discussions about "diversifying" their dollar assets, as European stock markets were rising at the time, and due to "animal spirit," people's attention was naturally drawn there. However, such preliminary discussions were quickly suppressed by more rational voices within.

For at least the past 15 years, investing in dollar-related assets has brought them substantial returns, and easily shifting away is not a mature or rational approach, especially for large funds.

However, since entering April, the previous "preliminary discussions" are no longer facing resistance within many funds, and these large funds are seriously considering the possibility of withdrawing funds from the U.S.

"This situation is too rare," the hedge fund manager said. "The only comparable instances I can recall are before the financial crises of 2001, 1998, and 2008, when there were triggering events for systemic risks, such as the internet bubble and the real estate bubble."

In his view, the simultaneous decline of stocks, bonds, and currencies is a situation that often occurs during crises in emerging market countries, but unexpectedly, such a situation has recently occurred in the U.S., the world's most mature and developed financial market.

Traditionally, the dollar and U.S. Treasuries are global safe-haven assets. When a crisis occurs in the market, funds flock to the dollar and U.S. Treasuries for safety, leading to increases in Treasury prices and the dollar. However, this year, the financial market crisis originating in the U.S. and created by Trump has forced funds to seek new safe-haven channels, such as cash or even the euro. Since the beginning of this year, the euro has risen nearly 20% against the dollar, and the yield on Swiss 2-year government bonds briefly turned negative, meaning investors are even willing to pay the Swiss government to protect their funds.

Many phenomena occurring recently in the U.S. financial market have overturned the perceptions of many professional investors.

"I can accept the dollar falling and U.S. stocks falling, but what I find hard to accept is that all asset classes are declining indiscriminately, and the U.S. is becoming like an emerging market country. This far exceeds my investment experience over the years," the hedge fund manager said.

He stated that the panic sell-off occurring in the short term is not what he is most worried about, as panic sell-offs are more driven by short-term irrational emotional factors, and ultimately the market will return to rationality and common sense. Therefore, in many cases, panic sell-offs can actually create new investment opportunities. However, in the recent U.S. financial market, he has observed that more funds are orderly withdrawing, without panic, but rather rationally, decisively, and unhesitatingly.

The market on April 21 also reflected this situation, as the VIX index, which reflects market panic, actually fell by 2.23% that day.

"Foreign capital is fleeing, and U.S. capital is deleveraging; that's the current market situation I can think of," the hedge fund manager said.

If the situation continues to deteriorate, the Federal Reserve will have to take action, just like during the 2008 financial crisis and the 2020 COVID-19 pandemic. However, the Fed is currently choosing to remain inactive.

The Fed's "non-cooperation" has already triggered Trump's continued attacks. On the 21st, Trump directly pointed out that Fed Chairman Powell is acting too slowly and threatened to directly fire him from his position, while Powell has also shown a tough stance, stating that he will continue to serve until the end of his term in 2026.

The publicization of the conflict between the U.S. President and the Fed Chairman further undermines market and investor confidence. Evercore ISI Vice Chairman Krishna Guha stated in an interview with CNBC on Monday that if Trump attempts to fire Fed Chairman Powell, it could trigger a significant sell-off in U.S. stocks.

Guha stated, "If the independence of the Fed begins to be questioned, it will raise the threshold for the Fed to cut interest rates. If there is a real attempt to remove the Fed Chairman, I believe the market will react violently—yields will rise, the dollar will depreciate, and the stock market will fall sharply."

"I can't believe this is the result the government wants to achieve," Guha said.

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