Phones 'explode' on Wall Street as 'steamroller' shows up for the AI trade
SPY•The Nasdaq 100 fell 6.4%, erasing $2.5 trillion in market value, while the VIX jumped as much as 11.75 points to 28.36. Analysts linked the selloff to an unwind of the crowded AI trade, fund rebalancing and investors’ demand for hedges.
1. AI trade unwinds
Investors sold stocks on Thursday as the AI trade rapidly unraveled, with analysts citing an unwind of the previous session’s rally and crowded positions. The Nasdaq 100 fell 6.4%, erasing $2.5 trillion in market value, while the Nasdaq Composite declined 5.5%.
2. Volatility and hedging
The VIX jumped 11.75 points to an eight-month high of 28.36, its biggest intraday rise in more than 18 months, and closed at 28.18. Put premiums across index products ran at about twice their typical level, as options activity included fresh protection in semiconductor and AI stocks as well as investors taking profits on existing hedges.
3. Rebalancing adds pressure
Leveraged ETFs were expected to sell about $47 billion of stocks into the close as they rebalanced, according to an intraday note from Nomura; most of the selling was expected to come from tech and AI-focused funds. A Goldman Sachs prime brokerage report said large multi-strategy hedge funds were down “significantly” because of outsized exposure to large AI stocks. Retail investors were also on track for their largest day of single-stock selling since the COVID-related crash, Vanda Research said.
