Wall Street fear gauge soars as ‘steamroller’ shows up for the AI trade
The Nasdaq 100 index fell 6.4%, erasing US$2.5 trillion (S$3.2 trillion) in market value.
On November 5th, Wall Street experienced a surge in fear as the rapid decline of the artificial intelligence (AI) trade unfolded. Investors and hedge funds rushed to sell stocks amid concerns that the Democratic Party's victory in the midterm elections could slow AI infrastructure development. The Nasdaq 100 index plummeted 6.4%, wiping out $2.5 trillion in market value as the fear gauge spiked on Wall Street.
Jim Carroll, a senior wealth adviser at Ballast Rock Private Wealth, described the situation with the analogy of a "steamroller" showing up today. Goldman Sachs partner John Flood noted that his firm's phones were exploding with requests for information on the developing situation. Wall Street's most closely watched gauge of anxiety, the Cboe Volatility Index, hit an eight-month high of 28.36, showing the extent of investor unease.
The selloff was primarily driven by a retraction from the previous day's rally and the cautious reaction to Democrats' election victory. Analysts suggested that many investors were seeking to unwind their positions in AI-related stocks and hyperscalers. The VIX, an options-based indicator, experienced a sharp increase, reflecting the heightened demand for protection against market declines.
The decline in stocks contrasted with the market's positive response the day before, as investors largely disregarded the threat to the AI trade following the election results. Leveraged and inverse exchange-traded funds (ETFs) were expected to sell billions of dollars worth of stocks as they rebalanced, according to Nomura. Large multi-strategy hedge funds faced significant losses due to their exposure to large AI stocks, while technology, media, and telecommunications-focused funds also experienced a decline.
Analysts pondered whether this re-evaluation of the AI investment theme was a permanent shift or simply a trading rebalance. The outcome of this shift may have far-reaching implications for the AI trade and the broader market.
Written by urgent.news from Straits Times Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
