The Goldman Sachs Group Inc. Retail Favorites Index, which includes a large number of stocks held by non-professional traders, was severely hit by a sell-off triggered by Palantir Technologies Inc.’s disappointing earnings report and a filing showing that a prominent hedge fund manager had made bearish bets on the stock and chipmaker Nvidia Corp. last quarter.
The sharp drop in Bitcoin prices has intensified the pressure on individual investors, causing the index to fall by 3.6%, which is approximately three times the decline of the S&P 500 index.
This is the biggest drop for the index since April 10, when the stock market plunged amid concerns that the US president was about to introduce tariff policies. The index includes stocks such as Palantir, Tesla, Reddit and Robinhood Markets.
This year, the artificial intelligence boom has driven major stock indices to record highs, benefiting day traders, while concerns over the ever-expanding speculative bubble have also been growing.
According to data compiled by JPMorgan Chase, on Tuesday, investors remained active, purchasing $560 million worth of individual stocks and exchange-traded funds by 11 a.m. New York time, even as the stock market opened sharply lower. This may have helped the S&P 500 index rebound in the early trading session and recoup some losses, but it later reversed course and continued to decline.
Palantir, whose share price has soared this year, has been a favorite among day traders. However, its stock price has dropped sharply due to market concerns over the software company’s high valuation and the sustainability of the overall rally in the artificial intelligence sector.
Hedge fund manager Michael Burry rose to fame for his accurate prediction of the U.S. housing market crash in the book and film “The Big Short”. This time, he disclosed his short positions on Palantir and Nvidia, further intensifying the sell-off. Just a few days ago, he also issued a cautionary note, warning retail investors not to be overly optimistic.
“We tried to rebound in the morning, but failed,” said Melissa Amo, CEO of Stock Swoosh LLC, when describing the market trend. “This is the consequence when panic spreads and the selling starts.”
Meanwhile, the Bitcoin sell-off has also dealt a heavy blow to retail investors and dragged down stocks related to cryptocurrencies. The price of Bitcoin has fallen below $100,000 for the first time since June. This decline occurred three weeks after a historic liquidation event that wiped out billions of dollars in leveraged cryptocurrency positions.
Amo said she was bracing for another round of declines on Wednesday and encouraged traders to prepare a list of stocks they might want to buy if they could stomach some “pain”. “As long as they can handle the pain,” she said. “If they can’t, I suggest selling.”
