Due to the US government shutdown, key data is missing, leaving Fed policymakers in the dark. This uncertainty is testing investors’ nerves.
On Thursday, a sudden wave of risk aversion hit the market, causing several of the year’s best-performing stocks to fall sharply and further intensifying the recent decline in cryptocurrencies. Many traders pointed out that the reduced likelihood of the Federal Reserve cutting interest rates again in December was the most likely cause of this sell-off. Swap traders now estimate the probability of a rate cut at around 50%, down from 72% a week ago, and Fed officials have not shown a strong commitment to cutting rates in recent remarks.
The stocks that are known as high-momentum stocks and favored by retail investors were the first to be hit in the stock market sell-off, with their declines reaching the largest since April. These stocks had recorded some of the strongest gains in the market earlier this year. The core of the momentum strategy lies in buying stocks that have performed well recently and shorting those that have underperformed. Some of the top-performing stocks are related to artificial intelligence, and their valuations soared amid the market’s enthusiasm for this technology.
Matt Maley, chief market strategist at Miller Tabak + Co., said: “The promise of rate cuts was the reason many investors were willing to overlook the high valuations of momentum stocks. Now, as the appeal of that promise wanes, investors are reducing their holdings of these overvalued stocks.”
The Bank of America high-momentum stock portfolio fell 4.7% on Thursday, marking its biggest one-day drop since April, when President Trump’s tariff threats were at their most intense. The portfolio had previously rebounded from its April low by as much as 63% (as of Monday).
In recent weeks, the stocks that have benefited from the artificial intelligence sector have started to fall back. Investors’ concerns over overvaluation and huge capital expenditures have prompted them to take profits. The artificial intelligence-related stocks in the Bank of America Momentum Index dropped significantly on Thursday, with SanDisk Corp. falling by 14% and Astera Labs Inc. by 8.4%. Among the large artificial intelligence-related stocks, Nvidia Corp. declined by 3.6%, Broadcom Inc. by 4.3%, and Palantir Technologies Inc. by 6.5%.
Among the major U.S. stock indexes, the Nasdaq 100 performed the worst, dropping by 2%, while the S&P 500 fell by 1.7%. The decline in Bitcoin has widened, with its price now down more than 22% from the record high it reached in October.
Risk-averse sentiment seems particularly strong in the stocks favored by amateur traders. Barclays analysts recently pointed out that retail trading activity has seen a “significant decline” based on their stock mania index.
The Citigroup US Retail Select-Opinion Leaders Index dropped 6%, marking its biggest one-day decline since April 4. The index, which includes companies such as Tesla, SoFi Technologies and Riot Platforms, had nearly doubled in the 12 months through October 15, but has since fallen 15%. The “meme stock” ETF, led by Opendoor Technologies, plunged more than 11%, posting its biggest one-day drop since its launch last month. The VanEck Social Sentiment ETF and Cathie Wood’s ARK Innovation ETF both fell by more than 5%. Leveraged products linked to bitcoin miners and quantum computing companies suffered even steeper losses, with some products down more than 20%.
Technical analysis:
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Gold: Yesterday, our green zone buy limit failed, but the low-sweep in the yellow zone for a rebound was very successful. For today, considering the Friday factor, we think it’s more reasonable to reduce the overnight yellow zone long position and push for protection. At the same time, pay attention to the performance when it retraces to around 4150/60. For detailed positions, please consult the plugin.
(Gold 15-minute chart)
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The Nasdaq: After hitting the 25,200/25,300 range yesterday, it failed to rebound effectively and further dropped to the 24,900 level before stabilizing. For today, it is recommended to mainly observe. Only if there is a quick rebound after a liquidity flush at the opening of the North American market, should you consider participating in a rebound operation once. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: Yesterday, the price showed a clear rebound trend, recapturing the key resistance level of 59/59.30, which has now transformed into a key support position. Today, we will observe the price’s performance when it retraces to this level. After confirmation, we can consider 1-2 low-buy attempts. For detailed positions, please consult the plugin.
(Crude Oil 15-minute Chart)
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