(Bloomberg)– A spectacular forecast from Nvidia Corp. was supposed to bring back slump buyers. Instead, a tech rout and a mixed jobs report left investors battered and with the choice of nursing their wounds or retreating.
For strategists on the trading desk at Goldman Sachs Group Inc., a spike in short selling in macro products, including exchange-traded funds, custom baskets and futures, contributed to Thursday’s decline. The desk also noted poor liquidity, with book depth in S&P 500 futures falling below $5 million versus a one-year average of $11.5 million, a factor that may be magnifying stock market moves.
Bloomberg’s Most Read
Earlier this week, the company’s trading desk said the stage was ripe for stocks to rise after riskier assets had been sold off in a four-week decline. The bank’s trading desk pointed to quantum computing, cryptocurrencies and rare earth metals as areas showing “signs of life” in a note to clients Thursday morning.
The reversal has left investors caught off guard after many spent the week buying options that would benefit from a continued rise by the tech giants. Now, those positions are likely underwater given the 3.2% drop in Nvidia shares on Thursday and few catalysts remaining between now and the end of the year.
“Ahead of Nvidia’s earnings, we saw a strong wave of call option buying, indicating investors were positioning for a rally in the stock rather than covering dips,” said Robby Knopp, co-head of the S&P 500 options desk at Optiver, a market maker.
As US stocks fell, Wall Street’s fear gauge, the VIX, jumped as much as 19% intraday. Any trader hit by rising volatility is left hoping that the market’s relentless appetite for dip buying returns.
After Nvidia’s earnings, “investors are wondering what’s left to fuel a year-end rally,” Chris Murphy, co-head of derivatives strategy at Susquehanna International Group, wrote in a client note.
Black Friday retail sales and the upcoming Federal Reserve meeting are among the only catalysts left for investors, according to Stuart Kaiser, chief equity strategist at Citigroup Inc.
“Retail trading has pulled back a lot in the last two or three weeks,” Kaiser said Wednesday at an event hosted by Sifma, a Wall Street trade body. As a proportion of total U.S. stock trading volume, retail trading has fallen nearly a third to 11 percentage points from 16 percentage points, he noted.