U.S. stocks experienced their most dramatic intraday reversal since April, with benchmark indices hitting their lowest levels in over two months. Wall Street traders remain puzzled, scrambling to identify the exact catalysts behind the sell-off.
The Nasdaq 100 Index plunged nearly 5% from its intraday high, though no clear trigger has emerged to explain the sharp decline. Speculation about the sell-off’s causes has intensified, with selling pressure appearing to persist into Friday—Nasdaq 100 futures were down 0.8% as of 5:05 a.m. New York time.
Traders offered varying explanations for the downturn:
- Some cited renewed concerns over whether AI projects can generate sufficient revenue or profits to justify massive investments in the sector. - Others pointed to the delayed but strong September jobs report as the latest signal that the Federal Reserve may hold off on rate cuts this year. - Bitcoin’s drop to a six-month low was also flagged as a risk-off signal that exacerbated equity selling. - Additional factors included worries about stretched stock valuations and expectations of heightened volatility ahead of Friday’s options expiration.
Regardless of the cause, the intraday plunge erased early optimism that U.S. stocks would continue rebounding from October’s sell-off after hitting record highs. Initially, Nvidia’s blowout earnings and Walmart’s strong consumer spending signals had boosted sentiment, but relentless selling quickly overshadowed these positives.
Momentum trades were hit particularly hard: The long-short momentum stock index fell nearly 5% on Thursday, bringing its total decline to 16% since last month’s peak. Bitcoin acted as a sentiment gauge—after crypto markets stumbled, momentum stocks followed, dragging the Nasdaq 100 lower.
John Flood, a Goldman Sachs Group Inc. partner, noted that Nvidia’s stellar earnings failed to deliver the "all-clear" signal traders hoped for, instead prompting defensive moves against potential further losses.
Flood highlighted that since 1957, the S&P 500 has seen only eight instances—including Thursday—where it opened up over 1% but reversed to close lower. Historically, markets tend to rebound afterward, averaging gains of at least 2.3% the next day and 4.7% the following month.
Technicals also deteriorated. Thursday’s "bearish engulfing" pattern—where losses erased the prior day’s gains—signaled strong selling pressure. The rapid, large-scale formation echoed a similar pattern in early March, after which the S&P 500 fell 5%.
The S&P 500 initially rose 1.9% within the first hour but erased all gains, closing down 1.6% and wiping out over $2.7 trillion in market value. The VIX volatility index settled above 26 for the first time since April.
The tech-heavy Nasdaq 100 led declines, dropping 2.4% and extending its pullback to 7.9% from its October 29 peak. Tesla, Alphabet, Apple, Microsoft, Broadcom, and Amazon each saw over $100 billion in market cap swings. The Nasdaq 100 Volatility Index (VXN) also breached 32 for the first time since April, spiking ahead of Friday’s $3.1 trillion options expiration.
Nvidia was the Nasdaq 100’s biggest drag—after rising 2.4% early, it closed down 3.2%, shedding nearly $400 billion intraday. Despite its upbeat revenue outlook, skepticism about AI chip spending sustainability muted investor enthusiasm.
The S&P 500 is now down over 5% from October’s peak, closing below its 100-day moving average for the first time since February at its lowest level since September 11. High-risk segments suffered most: the most-shorted stocks fell 3.5%, Goldman’s unprofitable tech index dropped 3.7%, and the Russell Microcap Index slid 1.9%, down 10% from its high.
**Wall Street Reactions:**
- **Brent Schutte (Northwestern Mutual Wealth Management):** "Nvidia’s report must be viewed alongside unresolved macro concerns—labor market strength, fiscal policy, inflation, Fed actions, AI sustainability, valuations, private credit risks, and crypto volatility." - **Frank Monkam (Buffalo Bayou Commodities):** "Crypto’s bear market suggests deleveraging isn’t over. Retail investors, key to this year’s rally, are now exposed." - **Sameer Samana (Wells Fargo Investment Institute):** "Nvidia’s results were positive but didn’t resolve overvaluation or debt-fueled growth concerns." - **Steve Sosnick (Interactive Brokers):** "Bitcoin retesting $90K is a real barometer of risk appetite." - **Chris Murphy (Susquehanna International Group):** "With Nvidia’s event past and Fed cuts unlikely, investors question year-end rally drivers. CTAs remain vulnerable to further selling." - **Scott Rubner (Citadel Securities):** "Mechanical outflows may persist before tapering off." - **Greg Taylor (PenderFund Capital Management):** "Early optimism was likely short-covering. Now, markets are reassessing." - **Matt Maley (Miller Tabak):** "Can AI profitability match current valuations? Traders fear today’s investments won’t pay off in five years." - **Craig Johnson (Piper Sandler):** "Nvidia relieved some pressure, but market breadth needs time to stabilize."
