S&P 500 falls as ‘triple witchcraft’ rocks Nvidia: markets retreat

(Bloomberg) — The massive options expiration on Wall Street not only left stocks struggling, it also sent one of the bull market leaders on a roller coaster ride.

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About $5.5 trillion is estimated to expire on Friday in a quarterly episode known as “triple witching” in which derivative contracts tied to stocks, index options and futures expire – forcing traders en masse to roll over their existing positions or create new ones. This time, Nvidia Corp. plays an additional role. The value of chipmaker-related contracts due Friday is the second largest of all underlying assets, behind the S&P 500.

As contracts disappear, investors will adjust their positions, adding a burst of volume capable of swinging individual holdings. S&P 500 trading volume was 60% higher than last month’s average. Nvidia almost erased a drop of around 5% before starting to decline again.

The options event comes at a critical time for market positioning for the second half of 2024 and the Federal Reserve’s next steps. Data showed that U.S. services activity recovered earlier this month at the fastest pace in more than two years. Furthermore, sales of existing homes fell for a third consecutive month.

“Investors should prepare for drama,” said Solita Marcelli of UBS Global Wealth Management. “The second half of 2024 promises to be a period of transition and volatility. The decisions investors make today will be key to effectively navigating this period.

The S&P 500 fell to around 5,460 points. Nvidia lost around $200 billion in two days. Yields on the 10-year Treasury were little changed at 4.26%. France’s risk premium compared to Germany closes at its highest level since 2012.

The current AI frenzy that briefly made Nvidia this week the world’s most valuable company has also driven record inflows into technology funds, Bank of America Corp. strategists said. About $8.7 billion was invested in technology funds in the week to June 19, according to a bank note citing EPFR Global data.

“The ‘all roads lead to Nvidia’ trade is once again reinforced” as Europe reels amid political unrest in France, said strategist Michael Hartnett. Yet even though investors believe they still need more exposure to AI-related games, “all asset allocators are concerned about stock concentration risk.”

Company strengths:

  • Apple Inc. is denying a raft of new technologies to hundreds of millions of consumers in the European Union, citing concerns posed by the bloc’s regulatory attempts to rein in Big Tech.

  • Airbus SE is moving closer to a deal with Spirit AeroSystems Holdings Inc. to take over part of the aerospace supplier’s business, paving the way for an acquisition of most of the company by main rival Boeing Co. as early as next week.

  • American Airlines Group Inc. is suspending new pilot training until the end of this year, the latest pullback by a major U.S. carrier in the face of uneven travel demand and…

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