Despite retail investors net buying $560 million on the day, they were unable to prevent the Nasdaq from plummeting over 2%.
Written by: Bao Yilong
Source: Wall Street Watch
For retail investors keen on chasing popular stocks, the overnight U.S. stock market became the worst trading day since April.
On Tuesday, under the combined impact of Palantir's earnings report, bearish bets from well-known short sellers, and turmoil in the cryptocurrency market, stocks and assets previously favored by retail investors faced a fierce sell-off. The three major U.S. stock indices collectively fell, with the Nasdaq dropping over 2%.
According to the retail-heavy stock index tracked by Goldman Sachs, the index plummeted 3.6% on the day, about three times the decline of the S&P 500 index, marking the largest single-day drop since April 10.
At the opening of the U.S. stock market on Tuesday, retail trading enthusiasm did not immediately wane. According to data compiled by JPMorgan, as of 11 AM New York time on Tuesday, retail investors were still net buying individual stocks and ETFs worth $560 million.
This may have been one reason for the market's brief rebound in the morning session, narrowing the S&P 500's losses, but the upward momentum did not last, and the market turned downward again. Melissa Armo, CEO of the trading education platform Stock Swoosh, described the U.S. stock market's performance on Tuesday:
This happens when people start to panic and sell off.
Poor Earnings and the "Big Short" Entry
Specifically, two major events directly triggered the sell-off of popular retail stocks. The first was Palantir's earnings report, which raised concerns about its growth prospects.
Wall Street Watch noted that while Palantir's earnings report showed strong performance in the third quarter, the market questioned the sustainability of its high valuation. The stock, which has surged over 150% this year and was a "darling" of retail investors, saw a significant drop yesterday, closing down nearly 8% and continuing to decline in after-hours trading.
Palantir's stock price plummets
Secondly, regulatory filings from legendary investor Michael Burry became the last straw that broke the camel's back.
According to a 13F regulatory filing, hedge fund manager Michael Burry, known for the movie "The Big Short," established bearish positions on Palantir and chip giant Nvidia in the previous quarter.
Just days earlier, Burry had issued a warning to retail investors about excessive market exuberance, and this disclosure of short positions undoubtedly confirmed his bearish stance, quickly intensifying market panic.
Cryptocurrency Turmoil Intensifies Sell-off
In addition to the direct impact on the stock market, turmoil in the cryptocurrency space also heightened pressure on retail investors and dragged down stocks related to cryptocurrencies.
Wall Street Watch mentioned that Bitcoin's price accelerated its decline, falling below the $100,000 mark for the first time since June, dipping to around $99,932, and breaking below the 200-day moving average, marking the second-largest single-day drop of the year. Ethereum, the second-largest cryptocurrency by market capitalization, also plummeted over 10%, falling to around $3,225.
According to Coinglass statistics, in the past 24 hours, 342,000 people across the network were liquidated, with liquidation amounts exceeding $1.3 billion, of which long positions accounted for 85% of the losses.
The recent decline in the cryptocurrency market is not far from the historic liquidity crisis three weeks ago, which had caused billions of dollars in cryptocurrency leveraged positions to be forcibly liquidated.
Looking ahead, market sentiment remains tense. Melissa Armo stated that she is preparing for another potential downturn on Wednesday. She suggested:
If traders can endure some pain, they can start preparing a potential stock buying list. If not, I recommend selling.
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