JJ Kinahan is Senior Vice President, Head of Retail Expansion and Alternative Investment Products at Cboe Global Markets, Inc. (Cboe).
Key Takeaways:
- Nasdaq settles in correction territory
- The Cboe Volatility Index® jumped sharply
- Nvidia pulls at all three major indices
Traders slammed stocks tied to artificial intelligence (AI) in a broad-based selloff that more than wiped out Wednesday’s post-election euphoria.
The Nasdaq Composite was drenched in red throughout the session, falling below its 200-day moving average (DMA) and settling in correction territory after a 5.5% drop. The S&P 500 Index was off 4.4%, and the Dow was down 3.4%.
The selloff appeared to be prompted by investor fears that the bull market, largely driven by AI-centric technology investment and buildout, could be over. Many Democratic candidates who ran for governorships and won did so on promises to put the brakes on AI data center buildouts, moves that might lead to more regulations or moratoriums.
The Cboe Volatility Index® (the VIX® Index) also jumped, rising as much as 70% in intraday trading before settling at 27.01, up 62.61%. However, if this is not a time to panic, it might be a time to tread cautiously. Many traders may have thought today’s selloff was an overshoot to the downside, just as they may have seen Wednesday’s rally as an overshoot to the upside.
Let’s look at what drove the market mayhem first. Nvidia was among the biggest culprits given its presence on all three major indices. The chipmaker is now in bear-market territory and negative on the year after shares tumbled 9.3%, down 24% from its 52-week high a month ago. Advanced Micro Devices fell 17.3%, Intel lost 10.4% and Qualcomm lost 9.5%. Micron shares fell 17.5% and Broadcom fell 10.4%. SanDisk erased 22% for its worst one-day drop on record.
Alphabet and Tesla are also in a bear market. Alphabet shares retreated by 10.7% and Tesla fell 10.8%. SpaceX shares gave back 9% and are off 37% from their high.
Many traders rotated out of tech stocks into consumer staples stocks – we all still have to eat and shop for household items. Costco shares rose 1.8%, Kroger was up 0.65% and Procter & Gamble ended flat as did Coca-Cola. Walmart fell, but just barely.
As we noted yesterday, hyperscalers already deep into AI buildouts may have built a moat around themselves and become potential beneficiaries of an AI-stock pullback. Microsoft and Amazon also fell today. In a selloff of this size you expect everything to get hit — it’s just a matter of degrees — but we will keep watch on both. Microsoft shares fell 3.6% and Amazon lost 2.2%. Apple shares also fell 1.53%, but are still holding on to the $5 trillion market capitalization title.
Market thumps like this require patience and remind investors to stick to their initial entry and exit plans. No one wants to get too emotional and jump out of a stock because it’s falling hard in a broad-based selloff.
This might also be a time to look for opportunities. If a high-flying stock looked too pricey a month ago, maybe the price is more favorable right now. Options traders look for volatility, and with the VIX® Index at a cautious level, this might be a time to take advantage of it. Either way, tread and trade carefully.
Tomorrow’s employment report will give us better insight into whether September’s surprisingly soft job creation numbers were an outlier or the beginning of a trend. Economists are expecting 55,000 jobs were created in October, notably higher than September’s 29,000 new jobs. The Federal Reserve watches these numbers to help determine the direction of the economy and, ultimately, interest rates. Another soft number might put pressure on the Fed to keep interest rates at the 3.75% to 4.0% range until more data is available.
The CME FedWatch tool has a 68.4% probability the Fed will raise rates in December. However, that’s below yesterday’s 82.7% probability.
Happy Trading!
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