Most investors were caught on the wrong foot after the US stock market’s sudden intra-day reversal on Thursday. Despite a strong opening, after Nvidia’s strong earnings revived confidence in the AI trade, the Dow fell 0.84%, the S&P 500 dropped 1.56% and the Nasdaq Composite slid 2.15%. The US stock market ended up losing more than $2.7 trillion in equity market value.
Intra-Day Reversal
When stock markets rise, there are usually no questions, but when they decline, investors seek explanations and reasons.
This time, it was the sudden reversal that caught the investor community by surprise.
Stocks began the day gaining significantly on Thursday, but the overall sentiment changed as the session progressed. Investors and analysts are puzzled over the reasons behind the significant sell-off on Thursday, though certain events during the day’s trading session may provide clues.
A strong delayed jobs report for September arrived on Thursday. Although the unemployment rate inched up to 4.4%, the jobs data beat the forecasts by a big margin. Nonfarm payrolls grew by 119,000 jobs as against a forecast of around 55,000 jobs.
What it signalled was that the US Federal Reserve may not cut interest rates this year. The next FOMC meeting is scheduled for December 9-10, with uncertainty surrounding a potential rate cut announcement by Powell.
AI Bubble
Concerns also grew around an AI bubble, even though Nvidia projected a strong outlook for the sector. Major tech companies, including Nvidia, AMD, Palantir, Micron Technology, and Oracle, experienced significant declines ranging from 3.2% to 10.9%. Nvidia significantly impacted the Nasdaq 100, reversing an early gain of 2.4% and declining by 3.2%, which resulted in a loss of nearly $400 billion from its intraday peak.
Concerns were also raised regarding high stock valuations and increased volatility, along with a drop in Bitcoin to a six-month low. Taken together, all these factors may have triggered a risk-off sentiment that led to the sharp decline in US stocks on Thursday.
US stock futures have steadied as markets approach the end of the week.
