S&P 500 futures and Nasdaq 100 futures are bouncing back from a calamitous session that’s raised questions about whether we’re even still in a bull market.
If Wednesday was a case of traders looking at the glass half-full after the US midterm results, Thursday was a case of them discovering that the well was poisoned: The S&P 500 fell 4.4%, the Nasdaq 100 ended down 6.4%.
There was motivated selling, and bearish options activity.
“This feels like top-down pressure being applied via macro instruments,” wrote Goldman Sachs’ John Flood. “SPY volumes +160% vs. 20d, QQQ volumes +100% vs. 20d, SMH volumes +150% vs. 20d, DRAM volumes +75% vs. 20d.”
Cboe’s composite put/call ratio also jumped above 1 in a rare move.
As we discussed on Wednesday, the impact that constraints on data center construction have on chip sales, the knock-on effect for weaker hands that provide compute, and the potential hit to overall profit projections in a lower-capex world were among the concerns that could rise to the fore.
With the Philadelphia Semiconductor Index suffering its second-largest loss ever, the Roundhill Neocloud ETF falling double digits, and the SPY tanking 4.4%, all of those elements seemed to be in focus.
Goldman’s Flood and Vanda highlighted retail as massive sellers during Thursday’s rout.
Robinhood traders’ single-stock activity does not paint precisely the same picture, with net purchases shrinking significantly on Wednesday and Thursday, but staying positive. However, given the pickup in volumes in some of the most popular ETFs and the associated pickup in correlations among stocks, I suspect the broader picture of “retail capitulation” offers more than a kernel of truth in explaining the price action yesterday.
Over the past two days, the most-sold single stocks by Robinhood traders are Google, Amazon, and Microsoft in a case of selling the rip, and then continuing to sell the dip.
On Wednesday, Alphabet saw record daily outflows by Robinhood traders, Amazon suffered its second largest day of net sales, and Microsoft its tenth-biggest withdrawal. On the other side of the spectrum, Nvidia was the most-bought single stock on Thursday, its 12th biggest inflow from Robinhood traders on record.
As a subsidiary of Robinhood, Sherwood Media is restricted from writing about any company in which Robinhood is or was a selling group member of the IPO during the regulatory "quiet period" for that company.
Toldya
One of the key questions to be answered over the coming weeks (months?) is: “Who gets to say I told ya so?”
Coming into November, there’s been a camp of the mind that the drubbing in AI hardware selloff is primarily technical in nature, rather than a sign of looming weakness in AI-related demand.
“This was hedge fund deleveraging, not a top,” wrote 22V Research’s Jordi Visser on Nov. 1 of the price action during spooky season.
Earlier this week, Bespoke Investment Group also published some research that points to hedge funds swinging a bigger stick, especially in spurring some of the violent rotations that have been commonplace throughout 2026.
“Back before COVID, total hedge fund borrowing was a bit more than 20% of assets. Today that number is 34%, a record. In other words, while net assets are rising, this is also a story of leverage enabling a much faster growth of the left side of the balance sheet in isolation thanks to increases in debt,” they wrote of the data, which runs through Q2. “Hedge funds are growing rapidly and levering up, but are doing so by taking on larger shorts and more derivatives longs.”
The MVP <GO> function on Bloomberg yesterday, which tracks the most-viewed profiles on the Terminal, was littered with names of fund managers who were rumored to be in acute pain. That was followed by a host of lovely Bloomberg reporting on the industry’s recent woes, as well.
If this liquidation event was the exclamation point marking the end of forced selling, folks like Visser will probably get to say “I told ya so” before long.
One discovery from deep in the data mines: yesterday was only the second day on record in which the Nasdaq 100 opened above its 200-day moving average but closed more than 4% below that level. The only other occasion was August 31, 1998. That month, stocks were reeling from broadening emerging markets crises (this time, in Russia), with Long-Term Capital Management infamously getting crushed.
CNBC’s Mike Santoli flagged that while it was a rocky ride, near-term rewards were there for the taking.
Of course, neither of us is suggesting this n=1 is anything other than the flimsiest of foundations for a bull case. But it is interesting that there’s precedent for a massive, trend-breaking reversal to undermine a tech-led rally…and for that not to be the end of the advance. And this happened during the dot-com bubble, the period most often compared to the AI boom.
On the other hand, there are more fundamental AI bears — think the likes of Ed Zitron or Michael Burry — who might see recent events as part of a swelling “tide going out” moment for the theme.
To condense their theses and account for drift over time, let’s just summarize the bear case as calling into question the ROI on AI capex and highlighting the financial vulnerabilities created by the debt and spending commitments during the boom.
It’d be folly to suggest that absolutely nothing has fundamentally changed about the AI trade in recent weeks. You can’t just ignore the lack of receptivity of capital markets to financing some would-be providers of compute and the US electorate sending a clear anti data center message.
It’s been a K-shaped world in that everyone seems to hate all the capital (K) being poured into data centers: voters and investors alike.
Layer that on with reports of Microsoft reportedly “tightening oversight” of some data center projects, IREN allegedly being delayed in delivering capacity to the tech giant, and a “mystery seller” of $500 million in data center loans later said to be ING, and well, these are headlines that add credence to the incipient operational concerns.
An “I told ya so” from the fundamental AI bears? Well, that likely entails a much uglier path for major indexes than a world in which this price action was an “abandon ship” period from hedge funds overexposed to the buildout.
Seen on Socials
Via Dario Perkins on X:
