Opinion: The expectation of a US economic recession leading to a shift in risk preference is the reason for this round of declines in US stocks and cryptocurrencies

According to The Kobeissi Letter's analysis, the real reason for the market downturn is a sudden shift in risk preference. Within just a few days, the market went from extreme greed to extreme fear. The positioning was so polarized that it turned the market sentiment in completely opposite direction. Regardless of fundamentals, sentiment is always the ultimate driver of any market price. When sentiment changes rapidly, outflows will hit record highs and trigger flash crashes we've seen. Data shows that institutional capital exited before tech stocks fell. Going into 2025, hedge funds' holdings of Magnificent 7 US stocks will drop to their lowest level in 22 months. In the last week of February, cryptocurrency funds saw a weekly outflow record of $2.6 billion USD - about $500 million higher than the record set in 2024.