(Bloomberg) — A blowout forecast from Nvidia Corp. was supposed to bring back dip buyers. Instead, a tech rout and a mixed jobs report left investors battered and with a choice of nursing their wounds or wading back.
To strategists on Goldman Sachs Group Inc.’s trading desk, a pickup in shorting across macro products including exchange-traded funds, custom baskets and futures contributed to Thursday’s rout. The desk also flagged poor liquidity, with top-of-book depth in S&P 500 futures slipping below $5 million versus a one-year average of $11.5 million, a factor that may be magnifying stock-market moves.
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Earlier this week, the firm’s trading desk said the setup was ripe for stocks to move higher after the riskiest assets had sold off in a four-week long slump. The bank’s trading desk flagged quantum computing, crypto and rare earth metals as areas showing “signs of life” in a note to clients on Thursday morning.
The reversal has left investors flat footed after many had spent the week buying options that would benefit from a continued rise in the tech giants. Now, those positions are likely underwater given the 3.2% drop in Nvidia’s stock on Thursday with few catalysts left between now and the end of the year.
“Heading into Nvidia’s earnings, we saw a strong wave of call buying, signaling investors were positioning for a rebound in the stock rather than hedging downside,” said Robby Knopp, co-head of the S&P 500 options desk at Optiver, a market maker.
As US equities tumbled, Wall Street’s fear gauge, the VIX, jumped as much as 19% intraday. Any traders whacked by the spike in volatility are left hoping for a return of the market’s relentless appetite for dip buying.
After Nvidia earnings, “investors are left questioning what remains to drive a year-end rally,” Chris Murphy, Susquehanna International Group’s co-head of derivatives strategy, wrote in a client note.
Black Friday retail sales and the upcoming Federal Reserve meeting are among the only investor catalysts left, according to Stuart Kaiser, head of equity strategy at Citigroup Inc.
“Retail has pulled back a lot in the last two to three weeks,” Kaiser said on Wednesday at an event hosted by Sifma, a Wall Street trade body. As a proportion of overall US equity trading volume, retail has dropped by nearly a third to 11 percentage points from 16 percentage points, he noted.
