Markets in Turmoil: Brutal Sentiment Sparks $4.5 Trillion Loss

The market’s turning—fast. The Kobeissi Letter’s latest commentary highlights exactly what I’ve been warning my students about for months: sentiment is everything. When the tide turns, it turns HARD. And that’s what we’re seeing play out across equities and crypto right now.

The S&P 500 has erased $4.5 trillion in market cap since February 20th, a brutal selloff that’s sending fear levels to their lowest since the 2022 bear market. Crypto is faring no better—despite multiple bullish catalysts, total market cap has plunged $1 trillion-plus from all-time highs.

So, what’s changed? If you’re blaming tariffs, you’re missing the bigger picture.

Get my take on the markets—and the opportunity I’m seeing right now—in this NO-COST live webinar.

The Shift in Risk Appetite

Back in December 2024, the market was euphoric. Apollo Global Management even put the chance of a U.S. recession at 0%. That’s right—zero. Meanwhile, they pegged a 90% chance of tariffs.

Fast forward to March, and tariffs are here—but markets have known about them for months. This isn’t just about trade policy. It’s about sentiment.

The Kobeissi Letter points out a critical reality: risk appetite has collapsed across the board. The Fear & Greed Index in crypto has plunged from an “Extreme Greed” reading of 92+ to just 17—a complete 180 in just a few months. Stock market sentiment isn’t any better.

When sentiment turns, positioning follows. That’s why we’re seeing record-breaking outflows hit every asset class.

Capital Flees the Markets

We’re witnessing a mass exodus from risk assets. In just one week:

• Crypto funds posted a record $2.6 billion outflow, surpassing the 2024 record.
• U.S. small-cap funds saw $3.5 billion in outflows, the most since December 18th.
• Mid-cap funds lost $2.1 billion.
• Technology sector funds saw $1.9 billion in outflows, leading the rotation out of growth stocks.

This is why I always say: “Watch what people DO, not what they SAY.”

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The same institutions that were buying the dip last year are now dumping positions at record speed. Liquidity is vanishing, and that’s why we’re getting these violent selloffs across the board.

Crypto: From Hype to Horror

The crypto market is the best example of why fundamentals don’t matter when sentiment shifts. Every bullish catalyst imaginable has hit the space in the past two months:

• Trump won the election—bullish for deregulation.
• Gary Gensler resigned—bullish for reduced SEC pressure.
• Memecoins were ruled not securities—bullish for speculative trading.
• The U.S. announced a Bitcoin Strategic Reserve—a clear sign of institutional validation.

Yet, despite all this, crypto has erased over $1 trillion in market cap. Even the Bitcoin reserve announcement became a “sell the news” event.

Why? Because positioning was already maxed out. When everyone’s already long, there’s no one left to buy. The only direction left is down.

The “Magnificent 7” Unwind Is Accelerating

The same thing is happening in equities—especially with the Magnificent 7, which has been the most crowded trade in the market for over a year.

According to BofA’s Fund Manager Survey, 71% of investors named “Long Magnificent 7” as the most crowded trade heading into 2025. That’s unsustainable.

Now, we’re seeing the same net exposure unwind that happened in late 2021—right before the 2022 bear market began. Goldman Sachs data shows that when Magnificent 7 positioning unwinds, the Nasdaq follows—and hard.

The last time this happened, we saw a 30% drawdown in the Nasdaq-100. If history repeats, things could get a lot worse before they get better.

Volatility Is Just Getting Started

Market swings might become a fact of life in the coming months. With the Chicago Board Options Exchange’s CBOE Volatility Index—a measure of stock market volatility based on S&P 500 index options—up 70% in one month, 1,000 point swings in the Dow could become a regular occurrence.

Translation? If you’re not prepared for extreme volatility, you’re already behind.

This isn’t a market for passive investors. This is a trader’s market. The people who thrive in environments like this are the ones who can react quickly, manage risk, and trade momentum.

Final Thoughts: The Only Trade That Matters

Markets aren’t crashing because of tariffs. They’re crashing because sentiment flipped before most people realized it.

We’ve seen this pattern before:

1. Max euphoria → Investors pile into the most obvious trades.
2. Sentiment shift → Outflows begin, but people are still in denial.
3. Liquidity crunch → Funds start selling to meet redemptions, and the real panic begins.
4. Crash or reset → Once enough leverage is cleared out, the market stabilizes.

Right now, we’re somewhere between steps 3 and 4. That means more pain could be ahead.

The smartest move? Stay defensive, trade cautiously, and wait for the next real opportunity. When markets go from extreme greed to extreme fear, they always overshoot in both directions.

This is a market tailor-made for traders who are prepared. Momentum stocks thrive on volatility, but it’s up to you to capitalize on it. Stick to your plan, manage your risk, and don’t let FOMO drive your decisions.

These opportunities are fast and unpredictable, but with the right strategy, you can make them work for you.

If you want to know what I’m looking for—check out my free webinar here!