The VIX Index, an options-based measure of expected volatility in stocks, closed above 26 for the first time since April.
The most dramatic intraday reversal in the US stock market since April dragged benchmark indexes to their lowest levels in more than two months — all while leaving bewildered Wall Street traders scratching their heads about what exactly caused it all.
While there was no obvious catalyst to blame for a plunge of almost 5% in the Nasdaq-100 Index from its high of the day, theories for the selloff were piling up.
Some traders pointed to resurfacing concern around whether artificial-intelligence projects are generating enough revenue or profits to justify the massive spending on the technology. To others, a strong delayed jobs report for September was the latest sign that the Federal Reserve is done cutting interest rates this year. Others said a risk-off signal sent by the drop in Bitcoin to a six-month low was partly to blame for the rout in equities. Worries about lofty stock valuations and an uptick in volatility heading into Friday’s options expiration were also cited.
Whatever the reason, the intraday slide wiped out an early feeling of optimism that US equities would continue a rebound from a selloff that followed the market’s last record highs near the end of October. What at first appeared to be a blowout earnings report from Nvidia Corp., the chipmaker at the epicenter of the AI race, and a quarterly update from Walmart Inc. that showed consumers are still spending were quickly overshadowed by a sudden, relentless bout of selling.
After rising as much as 1.9% an hour into the session, the S&P 500 Index erased its gains to close down 1.6% as more than $2.7 trillion in equity market value was wiped out. The VIX Index, an options-based measure of expected volatility in stocks, closed above 26 for the first time since April.
The Nasdaq-100 gauge of tech giants led the stock market lower, ending down 2.4% and widening its decline from an Oct. 29 record to 7.9%. Tesla Inc., Alphabet Inc., Apple Inc., Microsoft Corp., Broadcom Inc. and Amazon.com Inc. each had swings of more than $100 billion in their valuations. A gauge of expected volatility in the Nasdaq 100 Index rose above 32 for the first time since April. The VXN, known as the VIX for tech stocks, spiked ahead of Friday’s expiration of an estimated notional $3.1 trillion in options, including $1.7 trillion of S&P 500 contracts and $725 billion notional of single-stock options.
Nvidia was the biggest drag on the Nasdaq 100, erasing an early 2.4% gain to drop 3.2% in a rout that wiped out almost $400 billion from its intraday high. Investors shrugged off the company’s stronger-than-expected revenue forecast amid resurfacing worries that spending on AI chips isn’t sustainable.
The S&P 500 has now declined more than 5% from its October record and has fallen below its 100-day moving average for the first time since February. The benchmark index closed at its lowest level since Sept. 11. Thursday’s selling was even more pronounced in the riskiest nooks of the stock market. A gauge of the most shorted stocks declined 3.5%, while a Goldman Sachs Group Inc. index of profitless technology firms lost 3.7%. The Russell Microcap Index fell 1.9%, widening its decline from a record to 10%.
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Here is what Wall Street analysts, strategists and traders said about Thursday’s wild swings in the stock market:
Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company:
“Nvidia needs to be placed in the context of all the questions that are simmering in the nearer term – from the strength of the labor market, tariffs, inflation and the Federal Reserve’s future actions to the sustainability of AI to equity valuations, concerns around private credit, pullbacks in unprofitable tech stocks and cryptocurrencies, and more. Put simply, there are many unanswered economic and equity market questions out there that investors are now debating.”
Frank Monkam, head of cross asset macro strategy and Trading at Buffalo Bayou Commodities:
“With crypto moving into bear territory, the cross-asset deleveraging cascade is yet to conclude. Crypto is retail heavy, and retail has led us higher since the spring – the vulnerably is clear.”
Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute:
“The Nvidia results, while positive, weren’t enough to dispel doubts around whether valuations had gotten too rich and whether the recent move towards debt-based financing meant the investment levels were too aggressive without enough focus on shareholder returns.”
Steve Sosnick, chief strategist at Interactive Brokers Group Inc.:
“One of the things I’m watching right now is Bitcoin back to flirting with $90,000 because, like it or not, it’s become a real proxy for risk tolerance overall among investors.”
Chris Murphy, co-head of derivatives strategy at Susquehanna International Group, spoke of the influence of trend-following funds, known as commodity trading advisers:
“With Nvidia earnings now behind us and the Fed unlikely to cut in December, investors are left questioning what remains to drive a year-end rally. CTA positioning reportedly remains vulnerable here; systematic strategies are still modestly net long, and a deeper pullback could force additional selling.”
Scott Rubner, head of equity and equity derivatives strategy at Citadel Securities:
“Those mechanical outflows are likely to stay heavy over the next few days, then fade away completely.”
Greg Taylor, chief investment officer at PenderFund Capital Management:
“I think the early optimism was really just short covering. Now, we’re getting some sober second thoughts,” he said, referring on Nvidia’s earnings results.
Matt Maley, chief market strategist at Miller Tabak + Co. LLC:
“Is AI going to be as profitable as the market is pricing in? That’s the key question. Traders are worried about whether AI investments today would be profitable in five years. As a result, people are saying, ‘I’ve got to take some chips off the table.’”
Craig Johnson, Chief Market Technician at Piper Sandler:
“Investors breathed a sigh of relief after Nvidia’s earnings. However, more time is needed for market breadth to stabilize and begin to recover.”