At midnight on October 31, East 8 Time, the three major U.S. stock indices collectively retreated, with the Nasdaq experiencing an eight-day consecutive decline and approaching the boundary of a technical correction; overvalued sectors and risk assets adjusted in tandem, with AI concept stocks and U.S. crypto concept stocks facing pressure simultaneously. The uncertainty of the macro interest rate path and the withdrawal of funds from high Beta sectors have become the core catalytic factors for this round of adjustment.
Overall Performance of U.S. Stocks and Key Data
● Index Performance: As of the market close on October 30, the Nasdaq fell for the 8th consecutive trading day, marking the longest consecutive decline since this round of adjustment, with the cumulative decline nearing the 10% "technical correction" threshold from the year's high.
● Divergence Among the Three Indices:
● The S&P 500 closed in the red again, with intraday declines maintaining around 1%;
● The Dow Jones had relatively limited declines, benefiting from some defensive blue chips and energy sectors;
● The Nasdaq led the decline in growth sectors, with concentrated selling pressure on high-valued technology and AI tracks during the session.
● Trading and Volatility:
● The overall trading volume of Nasdaq component stocks slightly increased compared to the previous trading day, showing characteristics of volume-driven decline;
● The main volatility index of U.S. stocks has continued to rise over the past week, reflecting an increase in market risk aversion.
● Technical Position: The Nasdaq has currently retreated from the year's high to near the 10% correction line, with some technical analysis institutions viewing this as a key support zone for the current upward trend.
AI Concept Stocks Under Pressure
● Leading Stocks Adjusting: AI hardware chain leaders such as Nvidia, AMD, and Micron have weakened continuously over the past several trading days, with some stocks retreating by double-digit percentages from their recent highs. Market concerns regarding the pace of capital expenditure related to AI and short-term profit realization have translated into valuation compression.
● Software and Cloud:
● Companies deeply tied to large models and cloud services, such as Microsoft, Amazon, and Google's parent company, exhibited a "good data but falling" characteristic post-earnings, reflecting valuation digestion pressure under high expectations;
● Some small and mid-cap pure AI concept stocks have seen declines significantly higher than the broader market, experiencing liquidity discounts and a sharp drop in risk appetite.
● Trading Characteristics:
● Throughout the session, the AI sector made multiple attempts to rebound but faced limited buying strength, with short-term funds primarily reducing positions on rallies;
● In the options market, the implied volatility of put options for several popular AI stocks has risen, with a temporary tilt towards bearish positions in the call/put ratio.
● Sentiment Changes: The "AI mindless bull" sentiment has noticeably cooled since early this year, with investors paying more attention to:
● Whether the growth rate of server and GPU shipments can match previous optimistic guidance;
● The pace of commercialization of large models and whether it will drag down the profit margins of cloud providers.
Crypto and U.S. Tech Sector Correlation
● Price Correlation:
● Since late October, mainstream assets such as Bitcoin and Ethereum have retreated in tandem with the weakening of U.S. tech stocks, with cumulative declines reaching the high single-digit percentage range within a few days;
● Crypto mining and trading platform concept stocks listed in the U.S. have generally seen declines greater than the average levels of the S&P and Nasdaq, exhibiting typical high Beta characteristics.
● Sentiment Transmission:
● The withdrawal of funds from tech and growth stocks has raised the overall risk premium for risk assets, and crypto assets, due to their "no cash flow, high volatility" characteristics, often face priority selling pressure during periods of sentiment contraction;
● On social platforms and in the derivatives market, short-term bullish sentiment has rapidly cooled, with leveraged funds actively de-leveraging, pushing crypto prices down temporarily.
● Fund Structure:
● Recent data from on-chain and ETFs show that traditional institutional funds remain cautious and have not shown significant allocation actions;
● The dominant forces in the market are still primarily high-frequency and quantitative funds, which are highly sensitive to macro and U.S. stock fluctuations, amplifying the short-term correlation between crypto and tech stocks.
● Valuation and Narrative:
● The AI narrative of tech stocks and the "new round of technological cycle narrative" in crypto have a high degree of overlap at the funding level. When AI valuations are systematically discounted, the associated high-risk tech and crypto assets face the reality of being "packed and reduced" together.
Interest Rate Expectations and Macroeconomic Background
● Uncertainty in Interest Rate Path:
● The latest U.S. inflation and employment data remain in a high hovering range, significantly cooling market expectations for "rapid interest rate cuts";
● The implied probability of interest rate cuts in the coming months from federal funds futures has decreased compared to earlier, with long-term rates remaining at relatively elevated levels, putting pressure on growth stock valuations.
● Rising Real Interest Rates:
● Under the dual impact of inflation falling short of expectations and nominal rates remaining high, real interest rates remain relatively high, which is particularly unfavorable for tech and AI companies that rely on discounted future cash flows;
● Crypto assets are often viewed as "high-risk, long-duration assets" in macro models, thus also facing valuation discounts during periods of rising real interest rates.
● Liquidity Environment:
● The Federal Reserve continues to reduce its balance sheet, leading to a significantly tighter liquidity environment compared to the past two years, with overall market risk appetite weaker than during the easing cycle;
● Against this backdrop, funds prefer traditional blue-chip and defensive sectors with higher profit certainty and stable dividends, while being more restrained in allocating to high-volatility assets like AI and crypto.
● Amplification Effect of Macroeconomic News:
● The volatility of tech and crypto sectors is often amplified around key inflation data and Federal Reserve officials' speeches, with short-term funds engaging in dense speculation leading to expanded intraday fluctuations.
Bullish and Bearish Perspectives and Potential Risks
● Optimistic/Bullish Perspective:
● Believes that the Nasdaq and AI sectors have entered a "technically healthy correction" phase, cleansing short-term leverage and crowded trades, which is beneficial for a more stable expansion of future trends;
● Emphasizes the structural logic of long-term demand for AI and computing power cycles, pointing out that current valuations have already seen significant corrections, improving the cost-performance ratio for medium to long-term allocations;
● For crypto, bulls believe that under the catalysts of the halving cycle and the expansion of mainstream institutional products, the current correction is more influenced by macro and sentiment disturbances, not altering the medium to long-term bullish structure.
● Pessimistic/Bearish Perspective:
● Worries about the stickiness of U.S. inflation and fiscal deficit issues, which will force the maintenance of a longer high-interest rate environment, continuously pressuring all high-valuation risk assets;
● Believes that AI capital expenditures may see downward adjustments or slowdowns in the coming quarters, making it difficult to support the previously extremely optimistic growth expectations, with tech leaders facing a "double whammy" of profits and valuations;
● In terms of crypto, bears emphasize regulatory uncertainty and a lack of stable incremental funds, suggesting that if U.S. stocks continue to decline, a new round of de-leveraging and deep pullbacks in the crypto market cannot be ruled out.
● Potential Risk Points:
● Macroeconomic: If key inflation and employment data in the coming months exceed expectations again, it may reignite discussions of "further rate hikes";
● Earnings: If tech and AI leaders lower guidance in subsequent earnings reports, it may trigger a new round of valuation repricing;
● Market Structure: Sectors with high leverage and high-frequency trading proportions are prone to liquidation-style selling once liquidity is withdrawn.
Market Outlook and Key Observation Points
In the short term, the market will focus on three key variables: the Federal Reserve's interest rate meeting, subsequent inflation and employment data, and earnings guidance from tech leaders. As long as interest rate expectations do not further deteriorate and tech leaders do not experience systemic performance slowdowns, the Nasdaq and AI sectors are expected to attempt to build temporary support in the technical correction zone. For crypto assets, it is essential to closely monitor: first, whether risk appetite recovers after macro volatility subsides; second, whether clearer signals of medium to long-term incremental funds emerge from on-chain and ETF channels. Until then, high-volatility assets will remain highly sensitive to macro data and U.S. stock sentiment, significantly increasing the importance of position and leverage management.
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