The US stock market ended the week lower: the Nasdaq lost 3.4%, the S&P 500 — 2.7% amid a collapse in chipmaker stocks and doubts about the payback of artificial intelligence (AI) spending. While institutions are booking losses, retail investors are buying the dip at record levels through leveraged funds — and risk multiple losses if the correction continues.
The week's winners were holders of gold and shares of major retailers like Amazon and Costco. Holders of tech stocks and cryptocurrencies, by contrast, suffered losses, while businesses and borrowers still face the risk of expensive credit: after strong labor market data, traders are pricing in another tightening of Fed policy.
Tech selloff and record leveraged buying
The Nasdaq 100 added 1.35% on Friday after its worst daily drop since March 2020. The SOXX semiconductor index rose 4.2% during the session, though the day before it had also posted its worst day since 2020. However, the rebound was narrow: only 44% of S&P 500 companies gained, and the index's typical stock lost 0.24%. The S&P 500 itself is holding just above its 200-day moving average — the line traders use to judge the long-term trend.
Shares of chip, memory, and computer equipment makers fell the most over the week. Micron dropped 22%, SanDisk — 27.4%, Seagate — 28.5%, Nvidia — 8.8%, AMD — 11%. Amazon shares, by contrast, rose 7.9%, Berkshire Hathaway — 5.2%, Costco — 4.1%. Oil company ExxonMobil lost 11.4%.
Retail investors, meanwhile, are actively buying the dip. Inflows into leveraged ETFs hit a record $3.3 billion, while a record $2.2 billion was withdrawn from inverse funds that profit from market declines. Such instruments multiply the index's daily move, so any new drawdown will result in proportionally larger losses. The extreme skew in positioning and record demand for downside protection suggest forced selling may be nearing its end.
Strong US employment data only added pressure. In October the US economy created 165,000 nonfarm jobs against a forecast of 70,000, and unemployment unexpectedly fell to 4.1%. Traders began pricing in another Fed rate hike in December of about 0.2 percentage points, and the dollar index rose 0.4% over the week. Gold gained about 4.5%, ending a three-week losing streak, silver added 5.4%, while WTI crude fell 12.8% amid conflicting news around the Strait of Hormuz.
Asian markets suffered even more: South Korea's KOSPI index plunged 12% over the week, and foreign investors pulled the second-largest amount in history from Taiwan's market. Local regulators restricted short selling and are preparing a $15 billion stabilization fund.
Bitcoin (BTC) fell 1.8% over the week and is trading around $75,600, while the crypto market remains under pressure from deteriorating sentiment and reports of a $6.3 billion breach of Binance's security systems. At the same time, the market remains vulnerable to a new wave of declines due to uncertainty over AI spending and rising rate expectations.
Who expects further declines and where the money is
Prominent trader Mark Minervini allows for further declines: he expects the selloff to continue for another one to two weeks, and in his estimate the Nasdaq could lose 20–25% from its peak. The index has already fallen about 10% from its record, so the trader advises against buying in such a market, even if oversold indicators make stocks look cheap.
While some wait for a bottom, others are looking for lower-risk names in the tech sector: investors moved some money out of AI hardware makers into Apple, which spends moderately on AI, and on November 4 the company's shares hit a record of $354.50. The iPhone maker's market capitalization reached $5.08 trillion, surpassing Nvidia's valuation, while its shares lost only 0.66% over the week.
Bitcoin does not yet qualify as such a hedge: the indicator of BTC's cumulative correlation with the S&P 500 rose above zero for the first time since 2015 and reached 98.5. The leading cryptocurrency is now tied to the stock market more closely than usual, so if stocks fall further, the coin will most likely decline as well.
Cryptalist analysis: Record inflows into leveraged ETFs amid a narrow market rebound create a classic setup for cascading selling: retail leveraged positions will amplify volatility on any new downward impulse. At the same time, bitcoin's correlation with the S&P 500 at an all-time high strips the cryptocurrency of its safe-haven status — if the Wall Street correction continues, the crypto market will most likely follow stocks.