This week saw a fright in U.S. stocks, with the Nasdaq recording its largest three-week decline since April, as Wall Street prepares for more turmoil.

AI bubble burst concerns, expectations of economic slowdown, and profit-taking pressures are colliding in the market, resulting in the sharpest intraday volatility in months for U.S. stocks this week. The S&P 500 Index fell nearly 2% this week. Despite a rebound on Friday, the cumulative decline since November is still 3.5%. The tech-heavy Nasdaq Composite has dropped over 6% in November, marking the largest three-week decline since April. (Major U.S. stock market indices performance this week) Momentum stocks suffered heavy losses this week: Robinhood’s market cap has evaporated by about one-quarter this month, Coinbase plunged 30%, and Palantir fell about 23%. Goldman Sachs’ basket of high-beta momentum stocks plummeted nearly 15% from yesterday’s high. It’s the worst week for momentum performance since November 2022. (Goldman Sachs high-beta portfolio fell 14.7% from yesterday’s high) Investors who bet heavily on AI companies are feeling the most anxious. The Global X Artificial Intelligence & Technology ETF, which tracks AI stocks, is down around 10% this month, and the ETF tracking the seven major tech giants has fallen about 6.6% since the end of October. Nvidia’s earnings trigger unexpected sell-off After Wednesday’s U.S. market close, nearly everyone on Wall Street expected Nvidia’s strong earnings report to drive the market higher. Things indeed started that way, but then reversed dramatically. According to Wallstreetcn, Nvidia’s report and remarks were positive from any perspective. However, as Goldman Sachs top trader Ryan Sharkey pointed out: When genuinely good news doesn’t get rewarded, it’s usually a bad sign. On Thursday, Nvidia opened up 5% at $196, but then sharply plunged, closing down nearly 3% at $180.98—the lowest close since October 22 and a 7% intraday drop. This violent reversal dragged the S&P 500 down about 3%. Ramon Verastegui, a volatility trader and founder of Kairos Investment Advisors, said: “People were really spooked. Everyone I talked to honestly didn’t expect this.” He traded options into midnight, trying to benefit from the chaos, with only a short break for paddle tennis while checking his phone. Analysts pointed out that Nvidia CEO Jensen Huang’s attempts to dispel AI bubble concerns echoed remarks made by Cisco Systems head John Chambers during the dot-com bubble. Back in August, after Cisco reported revenue and profit growth of more than 60%, Chambers declared that “the second industrial revolution has just begun.” A year later, the stock was down 67%. From private credit to crypto assets In the past, stock investors rarely paid attention to private credit markets, but that has changed. From Sam Altman’s OpenAI to various credit segments, the influence of private markets is growing. The sudden collapse of auto parts group First Brands triggered market worries about loose credit conditions in these sectors. Orlando Gemes, CIO of London hedge fund Fourier, pointed out: “Some companies borrowed up to seven times their cash flow at 2%-3% interest rates, but now face the challenge of refinancing at 8%-10%.” The ongoing losses in cryptocurrencies are another pressure for investors. On Friday, Bitcoin prices briefly dropped to $80,553. Although it rebounded by the end of the New York session, it’s still down over 30% from the record $126,000 high set in early October. (Bitcoin rebounded to around $84,000 in the New York session) In the past, crypto market crashes had little impact on stocks or the economy as a whole, but as more people hold crypto assets and the market has grown larger, its potential widespread impact is sparking new questions. Traders said that throughout the week, Bitcoin prices were a key indicator for judging market direction. According to Wallstreetcn, hedge fund manager Bill Ackman said he underestimated the link between crypto and stocks like Fannie Mae and Freddie Mac. Forced liquidations and margin calls in the crypto market are driving selling in those stocks. High leverage and year-end profit-taking amplify volatility Traders attributed the dramatic volatility to leverage and the urge for profit-taking before year-end. According to FINRA data, brokerage account margin financing hit a record $1.1 trillion as of the end of October. Morningstar reports that, this autumn, leveraged stock fund assets surged to over $140 billion, the highest level since data began in the 1990s. Benn Eifert, managing partner at San Francisco’s QVR Advisors, said: “There is a group of excessively leveraged market participants who are long both crypto and bubble tech stocks. When they’re forced to liquidate crypto positions, they also sell tech stocks.” Human nature might also increase volatility. Investors still hold considerable profits this year. The S&P 500 is still up 12% for the year, while bonds are having their best year since 2020. Hedge fund traders worry year-end rallies might slip big bonuses through their fingers. If markets weaken around this time each year, they tend to rush to sell stocks. Even so, some believe volatility remains relatively mild. Matthew Tym, head of equity derivatives trading at Cantor Fitzgerald, said his clients don’t seem particularly panicked. Investors with broader market exposure, rather than concentrated bets on AI or crypto, are performing well. Tym said: “The S&P 500 is just 4.2% below its record high; most people are still waiting and watching.” Risk Warning and Disclaimer The market involves risk, and investments should be made with caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article suit their particular circumstances. Investing accordingly is at your own risk.