Nvidia’s earnings report dazzled, but U.S. stocks “turned downward”! Such a “roller coaster”—traders admit: No one saw it coming.
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Due to concerns over economic slowdown, investment bubble risks, and profit-taking by investors, U.S. stocks have recently experienced their most significant intraday volatility in months. The S&P 500 Index fell nearly 2% last week, with a cumulative drop of 3.5% in November; the tech-heavy Nasdaq Index dropped more than 6% for the month, marking its biggest three-week decline since April.
What especially surprised the market was that Nvidia’s earnings report, widely expected to boost the market, failed to provide sustained support. After reporting strong results, its stock price surged then pulled back, with the S&P 500 plunging over 2% in the following two hours. Some volatility traders noted that the market at the time was filled with panic that could not be attributed to any one factor.
During this wave of volatility, previously popular stocks took a major hit: Robinhood's market cap shrank by a quarter within the month, Coinbase Global's stock plummeted 30%, and Palantir Technologies fell about 23%. Meanwhile, cryptocurrencies also suffered steep declines, with the correlation between crypto and tech stocks significantly amplified, further increasing market pressure.
Artificial Intelligence Bubble Controversy
Although Nvidia and other AI companies continue to post strong profit growth, concerns are mounting over whether their capital expenditures can effectively translate to profits. In recent months, more than $1.5 trillion in AI-related investments have been announced globally, yet the valuation multiples of related stocks have not yet reached the levels seen before the bursting of the internet bubble in 2000.
Nvidia CEO Jensen Huang commented on the earnings call:
"There’s a lot of talk about an AI bubble. From our perspective, what we see is very different."
However, some traders have observed that stock prices often start to fall before negative news is publicly announced. Michael O'Rourke, chief market strategist at JonesTrading, pointed out in a report that Nvidia CEO Jensen Huang’s recent remarks in addressing market doubts were reminiscent of Cisco’s then-CEO John Chambers during the internet boom in 2000.Chambers had declared in August 2000, when the company’s revenue and profits were growing at over 60%, that “the second industrial revolution has just begun,” yet one year later the stock had fallen 67% cumulatively.
Chain Reaction in Private Markets and Cryptocurrencies
Previously, stock market investors rarely paid attention to private markets, but this is changing. Today, a series of industry-leading companies, including Sam Altman’s OpenAI, remain privately held, while "private credit" has become Wall Street’s fastest growing business segment.
Recently, the bankruptcy of a leading auto parts group raised concerns in the market about large-scale loans in the private credit sector. The company had previously raised about $11 billion from creditors. Orlando Gemes, CIO of London credit hedge fund Fourier Asset Management, noted:
“Some companies previously financed at low interest rates of 2%-3% with leverage ratios as high as seven times, but now face huge pressures refinancing at high rates of 8%-10%.”
At the same time, the sharp correction in the cryptocurrency market has further weighed on market sentiment. A group of "crypto treasury companies"—which have raised funds by issuing stock and hold large crypto positions—are facing massive selling, causing once-popular related strategies to plunge 37% this month, putting this hot trading pattern to a severe test.
Traders noted that as long as such crypto-linked companies are in trouble, investors will struggle to continue buying cryptocurrencies, and the market will lose a class of buyers capable of driving up prices. Although previous crypto collapses had limited impact on the stock market and economy, now the group of crypto holders is larger and the market is bigger; Bitcoin prices have become a key indicator for predicting the market’s next move.
On Friday, hedge fund manager Bill Ackman publicly stated that he had “underestimated” the correlation between the stocks of Fannie Mae and Freddie Mac and cryptocurrencies, as increased margin requirements for crypto holdings led to the sell-off of those mortgage agency stocks.
High Leverage Triggers Chain Reactions
Current market volatility is closely related to leverage trading and year-end profit-taking. Both Wall Street institutions and retail investors have used massive amounts of margin to amplify market bets. Finra data shows that margin balances in brokerage accounts reached $1.1 trillion at the end of October, an all-time high; Morningstar data shows that leveraged equity fund assets surpassed $140 billion this fall, the highest since records began in the 1990s.
While leverage trades can amplify gains in rising markets, they increase risks during turbulence. To meet margin calls, investors are forced to sell holdings, triggering a vicious cycle of "decline–forced selling–further decline." This is especially pronounced in the bitcoin market: when traders use high leverage to bet on rising crypto prices, a pullback can lead to mass liquidations and huge losses, potentially spilling over into tech stocks and other risk assets.
Benn Eifert, managing partner at San Francisco’s QVR Advisors, remarked:
“Some over-leveraged investors hold both cryptocurrencies and tech bubble stocks. When their crypto positions are liquidated, they have to sell tech stocks to meet margin calls.”
In addition, behavioral finance factors are at play, with investors cashing in profits. Even though the S&P 500 is still up 12% year-to-date and the bond market is seeing its best performance since 2020, investors widely fear they might give back those gains. This sentiment is particularly strong among hedge funds, where traders often scramble to sell as the market falters in order to secure year-end bonuses, creating a collective "selling–decline–more selling" vicious cycle.
Risk Warning and DisclaimerThe market has risks, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of any particular user. Users should consider whether any opinions or conclusions expressed herein are appropriate for their circumstances. Invest accordingly at your own risk. ```