U.S. stocks have lost approximately $3.7 trillion in market value during Thursday’s sell-off, as retail selling spread to hedge funds and asset managers before automated trading strategies deepened the losses.
Summary
- Retail investors’ net selling ranked behind only two sessions during the March 2020 pandemic shock.
- Nomura estimated $7 billion in potential dealer selling for each further 1% market decline.
- Volatility-control funds faced an estimated $61 billion reduction in stock exposure as market turbulence grew.
- Goldman Sachs estimated technology-focused hedge funds lost more than 4% during Thursday’s trading session.
According to Bloomberg’s Nov. 6 account, Wall Street took roughly 24 hours to reverse its initial welcome of the U.S. midterm election results. Investors first bought stocks as election uncertainty cleared and oil prices fell, before reassessing what Democratic control of Congress could mean for data center expansion.
The report described a succession of sellers entering the market, with individual investors moving first and professional funds following. As prices fell and volatility climbed, strategies tied to market movements faced pressure to cut their holdings.
US stock sell-off accelerates as institutional buyers retreat
Within the first half hour of Thursday’s session, retail investors began taking profits, according to the account. Hedge funds and long-only asset managers subsequently joined the selling, turning the early retreat into a much larger decline.
Vanda Research’s figures placed the day’s retail net selling behind only two sessions during the pandemic turmoil of March 2020. Its strategist Viraj Patel described retail investors and systematic strategies actively selling while institutional buyers stepped back.
Long-only managers, which generally hold assets in anticipation of rising prices, were among the sellers identified in the report. Hedge funds and quantitative strategies supplied further selling pressure as the session progressed, leaving fewer buyers willing to absorb the retreat.
The Nasdaq 100 recorded its largest decline since March 2020, Bloomberg reported. Stocks linked to the infrastructure behind artificial intelligence were among the hardest hit as investors reconsidered the political outlook for new projects.
Options positioning adds pressure as prices fall
Nomura strategist Charlie McElligott estimated that options dealers’ negative gamma exposure could generate approximately $7 billion in additional selling for every 1% market decline during Thursday’s trading.
His estimate described a mechanism through which falling prices could require dealers to sell more as they adjusted their hedges. The figure represented sensitivity to further market moves, rather than a confirmed amount already sold.
Volatility-control strategies faced another adjustment. The report put their estimated required reduction in stock holdings at $61 billion, based on market conditions at the time of the calculation.
Leveraged exchange-traded funds faced an estimated $47 billion in stock sales through rebalancing. Both figures concerned strategy-driven adjustments, separate from investors making discretionary decisions to exit particular companies.
Vanda estimated that commodity trading advisors sold approximately $13 billion in S&P 500 and Nasdaq futures. Such futures activity appeared alongside selling in individual shares and the potential hedging pressure identified by Nomura.
The estimates covered different strategies and instruments. They were not presented as one independently measured total of completed stock sales.
AI-linked funds absorb some of the heaviest losses
Goldman Sachs’ prime brokerage trading desk estimated that fundamental long-short funds lost approximately 1.3% on Thursday. Technology-themed funds fared worse, with losses exceeding 4%.
Baskets covering storage, optical networking, data centers and AI semiconductors dropped between 12% and 15%, according to the report. Selling reached several parts of the computing infrastructure trade, including companies supplying equipment and those supporting data transmission.
Bloomberg linked investors’ reassessment to Democratic skepticism toward data center expansion. Its account described concerns about the future political environment for construction, rather than identifying a newly enacted restriction responsible for Thursday’s decline.
During the session, the VIX climbed from 16.6 near the opening to almost 28 at the close. The move accompanied the fund losses, retail withdrawals and systematic selling described by the trading desks.
Bitcoin traders face their own wave of forced selling
The cryptocurrency market recorded substantial losses during the same session. As crypto.news previously reported, Bitcoin’s drop below $76,000 accompanied $954.38 million in long liquidations, against $127.30 million in shorts.
CoinGecko figures cited in that Nov. 5 report showed Bitcoin down 5.8% at $75,954, Ethereum down 7.5% at $2,251 and Solana down 7.9% at $89.16. Total cryptocurrency market capitalization fell 4.6% to approximately $2.66 trillion.
CoinGlass data put the number of liquidated traders at 210,326 across the preceding 24 hours. Long positions accounted for 88.2% of liquidations, with $817.35 million in bullish positions closed during the latest four-hour window.
