Overnight, why did U.S. stocks experience a massive plunge? Goldman Sachs gives nine reasons.

A celebration that should have been ignited by dazzling earnings reports and ideal data unexpectedly turned into a brutal selloff. Overnight, the U.S. stock market saw the most dramatic intraday reversal in months, catching investors off guard. On Thursday, triggered by chip giant Nvidia’s better-than-expected earnings and a “Goldilocks” non-farm payroll report, U.S. stocks soared at the open. The S&P 500 jumped as much as 1.9% within the first hour, but the optimism did not last. The mood shifted, the index turned downwards, ultimately closing 1.5% lower, erasing over $2 trillion in market value from peak to trough. Nvidia’s shares went from up over 5% to closing lower, Bitcoin fell below $90,000, and risk assets came under heavy pressure. This was the largest single-day intraday swing since the turmoil in April, with the fear index VIX jumping above 26. The sudden plunge left traders baffled, with the market filled with explanations from doubts about Fed rate cut prospects to worries about private credit risk. However, according to Goldman Sachs, a single catalyst is not enough to explain this dramatic reversal. Goldman Partner John Flood said bluntly in a report to clients, “The market is battered right now.” He pointed out that investors are fully in “profit and loss protection mode,” overly focused on hedging the risk of crowded trades. He believes that Nvidia’s strong earnings did not serve as the “all-clear” signal for risk appetite traders had expected, but instead prompted them to seek hedges to guard against further losses. Nine Culprits: Goldman Traders’ Comprehensive Breakdown To explain the market’s sharp reversal, Goldman traders highlighted nine interrelated factors in a report, forming the backdrop for the selloff. - Nvidia’s “Good News Exhausted”: Despite better-than-expected earnings, Nvidia's shares opened high but closed down 3%, failing to deliver the “definitive bullish signal” the market wanted. Top Goldman trader John Flood commented, “When genuinely good news is not rewarded, that’s often a bad omen.” - Private Credit Concerns: Fed Governor Lisa Cook publicly warned of “potential asset value vulnerabilities” in private credit and the risks posed by its complex links to the financial system, sparking market caution. Overnight, credit market deterioration saw investment-grade and high-yield bond spreads widen. - Jobs Data Didn’t Reassure: The September non-farm payroll report was generally solid but didn’t give the Fed a clear direction for its December rate decision, with the odds of a cut rising only modestly to 35%. - Cryptocurrency Crash: Bitcoin broke below the $90,000 psychological barrier, triggering broader risk asset selling. - Accelerated CTA Selling: Commodity Trading Advisor (CTA) funds were already extremely long. As the market broke short-term technical levels, their selling accelerated, with close attention on the crucial 6,456 S&P level, where most selling pressure concentrates. - Short Sellers Returning: As market momentum reversed, short positions became active again. - Weak Overseas Performance: Key Asian tech stocks like SK Hynix and SoftBank performed poorly, failing to provide a positive external environment for U.S. stocks. - Liquidity Dried Up: Market depth deteriorated sharply. According to Goldman data, S&P 500 top buy/sell order book liquidity fell to about $5 million, far lower than the year’s $11 million average, making the market more sensitive to large trades. - Macro Trading Dominates: ETF trading volume surged to 41% of total market volume, much higher than the 28% yearly average, signaling that macro trading, rather than individual fundamentals, is driving the market. Technical Alerts: Liquidity Drought and CTA Pressure Beyond the nine factors above, Goldman’s technical checklist further reveals the market’s fragile technical structure, a key reason the decline was amplified. First is systematic CTA selling pressure. Goldman models predict that regardless of next week’s market evolution, CTA funds will be net sellers. Traders are closely watching the medium-term S&P 500 level of 6,457—breaking it could trigger further programmatic selling. Secondly, severe liquidity shortage. Top-level S&P 500 order book liquidity has fallen to around $6 million, below the 20th percentile of the past year. This “zero liquidity” status means the market’s capacity to absorb sell orders is very poor, making small-scale selling potentially lead to sharp price fluctuations. Finally, the surge in ETF trading is also a red flag. As the market falls, ETF volume rises to 40%, usually signaling passive and macro-driven capital dominating, aggravating overall downward momentum. Market Mood is Fragile: Broad Defeat from Big Tech to Crypto Thursday’s action clearly demonstrated the extreme fragility of market sentiment, as the selling swept quickly from one asset class to another. Large-cap tech stocks took the brunt. Thanks to Nvidia’s results, U.S. tech giants—the “Mag7”—soared at the open, but as Europe’s market close approached, selling began, eventually falling in line with the broader market, in a typical “up-then-down” pattern. Meanwhile, retail favorites—the “Meme stocks” and high-momentum shares—were hit hard, recording their worst single-day performance since the “Tariff Liberation Day Crash.” All major U.S. indices, after breaking above the 50-day moving average at the open, are now testing (or breaking below) the 100-day average. Notably, the crypto market selloff seemed to precede equities. According to Bloomberg data, Bitcoin was hit hard after falling below the $90,000 psychological level, with the selling beginning ahead of the equities plunge, hinting that the risk-off mood may have started in this high-risk sector. Huge Options Expiry Imminent: Market on Guard Market complexity is further increased by upcoming massive options expiries. Goldman predicts this Friday will see the largest November options expiration in history, with contracts totaling $3.1 trillion in notional value—including $1.7 trillion in SPX index options and $725 billion in single-stock options. Huge options expiries often bring market volatility and may exert a “gravitational pull” on underlying asset prices. From flow data, the defensive stance is evident. According to Goldman trading platform data, long-only funds tended to sell throughout the session, while hedge funds went from being net buyers by 10% at the open to net sellers by the close, showing how smart money shifted rapidly within the day. For investors, this violent intraday reversal is a sharp reminder: in a market with fragile technical structure and nervous investor sentiment, simple fundamental positives may not be enough to support continued price appreciation. In the days ahead, the market will closely watch CTA moves, the impact of options expiries, and whether liquidity conditions worsen further. Risk warning and disclaimer The market presents risks, and investment should be made with caution. This article does not constitute personal investment advice, nor does it take into account individual users’ specific investment objectives, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Any investment based on this information is at your own risk.