Over the last two months, financial markets have witnessed a dramatic downturn, erasing a staggering $5.5 trillion in combined market cap from stocks and crypto. The S&P 500 alone has lost $4.5 trillion in just 13 days, averaging a $350 billion decline per day.

Stock Market Performance Breakdown

The stock market heatmap shows a broad-based sell-off across multiple sectors Since Beginning of Trade War, with the biggest names in tech, financials, and consumer industries suffering heavy losses MTD

Technology Sector:

Microsoft (MSFT) ↓ 8.17%

Oracle (ORCL) ↓ 13.74%

Nvidia (NVDA) ↓ 16.24%

Broadcom (AVGO) ↓ 20.63%

Adobe (ADBE) ↑ 0.68% (one of the few gainers)

Palantir (PLTR) ↓ 27.77%

CrowdStrike (CRWD) ↓ 26.01%

Consumer Electronics:

Apple (AAPL) ↓ 3.10%

Consumer Cyclical (Retail & Automotive):

Amazon (AMZN) ↓ 18.95%

Tesla (TSLA) ↓ 36.83%

Communication Services:

Google (GOOG) ↓ 13.27%

Meta (META) ↓ 16.15%

Financials:

JPMorgan Chase (JPM) ↓ 15.88%

Wells Fargo (WFC) ↓ 15.82%

Bank of America (BAC) ↓ 18.03%

Visa (V) ↓ 1.26%

Mastercard (MA) ↓ 4.39%

American Express (AXP) ↓ 17.33%

PayPal (PYPL) ↓ 21.57%

Consumer Defensive (Retail & Food):

Walmart (WMT) ↓ 14.32%

Costco (COST) ↓ 10.79%

Industrials & Energy:

General Electric (GE) ↓ 7.57%

Caterpillar (CAT) ↓ 4.90%

ExxonMobil (XOM) ↑ 2.36%

Chevron (CVX) ↑ 4.44%

Healthcare (Mixed Performance):

Eli Lilly (LLY) ↓ 3.32%

Johnson & Johnson (JNJ) ↑ 10.04%

Merck (MRK) ↑ 8.99%

AbbVie (ABBV) ↑ 12.73%

A Trade War We Already Knew About

The market was aware of incoming tariffs well before they took effect on February 1, 2025. In fact, despite mounting tariff threats in December 2024, major indices continued to hit all-time highs. Even after the trade war began, markets rallied further.

So why the sudden collapse after February 20th?

Institutional Exit Before the Fall

A crucial signal of market weakness was the quiet exodus of institutional investors. Hedge funds reduced their exposure to the Magnificent 7 tech stocks to a 22-month low at the start of 2025. This divergence between Nasdaq performance and institutional positioning suggested that the so-called "smart money" had already begun unwinding risk before the broader decline.

Crypto’s Role in the Crash

The cryptocurrency market has also seen over $1 trillion in losses, despite several bullish developments, including speculation about a U.S. Bitcoin Reserve.

On February 9th, institutional investors built the largest short position in Ethereum history, even as retail investors piled into crypto. But instead of rallying, crypto crashed, proving once again that sentiment shifts—not just fundamentals—drive price action.

What Really Changed?

In December 2024, investor sentiment was so euphoric that major firms like Apollo assigned a 0% chance of a U.S. recession while acknowledging a 90% chance of tariffs. Markets weren’t blindsided by tariffs; instead, they were blindsided by an abrupt shift in sentiment.

Fear & Greed indices for both stocks and crypto have hit their lowest levels since the 2022 bear market.

In 2024, crypto saw Extreme Greed levels (92+), but it has now plunged to 17 (Extreme Fear).

Volatility Index (VIX) has surged over 70% in one month, indicating extreme market uncertainty.

Massive Outflows Confirm Market Fear

Crypto funds saw $2.6 billion in weekly outflows, the highest ever recorded.

US small-cap stocks lost $3.5 billion in outflows—the worst since December 18, 2024.

Mid-cap stocks lost $2.1 billion in outflows.

Sector-specific funds saw $4.5 billion in outflows, including $1.9 billion from tech stocks alone.

Where Do We Go from Here?

This market environment is now dictated by sentiment shifts rather than fundamentals. As a result:

1,000+ point swings in the Dow could become a regular occurrence.

Volatility will remain elevated as long as fear-driven outflows continue.

Positioning ahead of market sentiment shifts will be the key strategy for 2025.

Disclaimer:

This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research or consult a financial advisor before making investment decisions.