The US stock market deserves a major correction. The US stock market finally had a decent drop, and I'll explain the logic behind it. Why did the US stock market experience a significant correction last night? Actually, it depends on the sector. Some highly hyped stablecoin concepts generally fell more. For example, Coinbase plummeted 15% last night, but some technology companies fared better and didn't fall as much.

Everyone should remember that the Federal Reserve only focuses on two indicators: inflation and employment.

- First, whether inflation is well controlled. Everyone knows that moderate inflation is beneficial to the economy, while malignant inflation is very harmful to the economy. Therefore, once it occurs, as in 2020 when the global trade was disrupted by the pandemic and inflation flew to six or seven points, the Federal Reserve began violent interest rate hikes at the end of 2021, so the Federal Reserve hopes to control inflation at two points.

- Second, yesterday's inflation was a little higher, but not much higher.

- Third, last night's non-farm employment data was lower than Wall Street's expectations, and much lower. What does this mean? It means that the employment indicator is very poor. If the Federal Reserve's inflation rises, it will raise interest rates; if inflation is OK, it will lower interest rates. The same goes for employment: if employment is very poor, the Federal Reserve will cut interest rates to stimulate the economy. If the employment data is good, the Federal Reserve will choose not to cut interest rates.

That's why I say that in the capital market, bad economic news is often good news for the capital market, and good economic news is often bad news for the capital market. The reason is that the capital market does not reflect the economic reality, but rather the market's expectations for the future based on the current economy. So today, bad news can be good news, and good news can be bad news.

Some people are asking, 'Teacher, theoretically, last night's non-farm data showed that the US job market is very weak. Theoretically, capital should price this bad news as the market being so bad that the Federal Reserve should cut interest rates to stimulate the market. Theoretically, the capital market should also interpret it as good news that the Federal Reserve will accelerate interest rate cuts. The capital market shouldn't have fallen into such a miserable state.'

According to this logic, why was the bad economic news still bad news in the capital market last night? Last night, the 20-year US Treasury bond TOT rose very well, which means that everyone moved from risky assets to safe-haven assets. This matter is not absolutely positively correlated, nor is it absolutely negatively correlated; it is not that simple.

The reason is that if the Federal Reserve sees market risks before the data is released and chooses to cut interest rates, the market will price it in, and the capital market will continue to make music and dance. However, with the data released last night being so dismal, it can be said that in such dire circumstances, if the Federal Reserve chooses to cut interest rates, the market will not price in the benefits of loose liquidity, but rather the remedy for a recession.

Now, when you are pricing in a recession, risky assets will naturally decline. But if you are pricing in that the market's risk is controllable and the market is not so bad, while also increasing liquidity through interest rate cuts, the market will feel that this is positive. The negative news is not so bad, and the positive news outweighs the negative news, so the market will rise.

However, yesterday's situation was that the market was particularly bad, and the negative news was particularly bad, but the positive news was not enough to offset the negative news, so the market would decline. In addition, with the PCE data, which reflects real inflation, being relatively high, and with no significant progress in negotiations with China, everyone will find that inflation will not come down quickly, and at the same time, a recession is taking shape and spreading.

Economic recession plus inflation, economic stagnation in this regard, because the employment data is not good. Second, inflation, because the better the tariffs, the higher the prices of goods, so the daily increase is mentally handicapping, which is very bad for the capital market. So what will happen next? I think the show has just begun.

Follow me and see through the essence.