(Bloomberg) — Wall Street’s massive options expiration not only made stock traders more cautious, but also sent one of the bull market’s leaders on a rollercoaster ride. Volume increased at the close of trading.
Most Read by Bloomberg
An estimated $5.5 trillion expired during the quarterly event known as the “triple witch” in which derivatives contracts linked to stocks, index options and futures contracts mature. Nearly 18 billion shares changed hands on US exchanges on Friday. This is over 55% above the three-month average.
This time, Nvidia Corp. played an increased role. The value of contracts related to the chip maker due on Friday was the second largest of any underlying asset, trailing only the S&P 500. And the expiration coincided with the rebalancing of the index by S&P Dow Jones Indices.
For Steve Sosnick at Interactive Brokers, the “key” rebalancing was set to occur in the Technology Solutions Sector Index — which is the benchmark for the roughly $80 billion XLK exchange-traded fund.
“Nvidia’s index weight will increase dramatically, largely at the expense of Apple,” he noted. “Given the huge importance of megacap tech in general — and Nvidia in particular — to the broader market indices, it’s not unreasonable for traders to be wary of big moves late in the day.”
As the contracts disappear, investors adjust their positions, adding a burst of volume capable of swinging individual holdings. The S&P 500 was lower at around 5,465. Nvidia nearly erased a decline of about 5% before pushing back lower. It wiped out over $220 billion in value in two days. Even Apple Inc. fell
10-year Treasury yields were little changed at 4.25%. France’s risk premium over Germany closed at its highest level since 2012.
The artificial intelligence frenzy that briefly made Nvidia the world’s most valuable company this week also led to record inflows into tech funds, Bank of America Corp. strategists said.
About $8.7 billion flowed into tech funds in the week to June 19, according to a note from the bank citing EPFR Global data.
“The ‘all roads lead to Nvidia’ trade has strengthened once again” as Europe wobbles amid political turmoil in France, strategist Michael Hartnett said. However, while investors still feel they need more exposure to AI-related plays, “all asset allocators are concerned about the risk of capital concentration.”
Keith Lerner at Truist Advisory Services says the firm is downgrading the tech sector to “neutral” as the industry has largely outperformed the S&P 500 since their “overweight” call in November.
“While we still have a favorable long-term view of the technology, on a short-term basis the sector looks stretched and we will not be chasing the sector,” Lerner noted. “That said, the sector looks far from ‘bubble’ territory and we believe the secular winds around AI will continue.”
Friday’s options event came at a critical time for positioning markets for the second half of 2024 and the Federal Reserve’s next steps. Data showed that U.S. services activity rose earlier this month at the fastest pace in more than two years. Separately, sales of existing homes fell for the third month in a row.
“Investors should prepare for drama,” said Solita Marcelli at UBS Global Wealth Management. “The second half of 2024 will be a time of transition and instability. The decisions investors make now will be key to effectively navigating this period.”
John Stoltzfus at Oppenheimer Asset Management says he remains bullish on the outlook for stocks as prospects for improving fundamentals this year show potential to materialize.
“That said, history shows us that stocks and other asset class prices do not rise in a straight line, but tend to climb the proverbial ‘wall of worry’, requiring careful diversification, patience and a sense of risk tolerance. and volatility for private investors and the discipline associated with an institution’s mandate for professional investors,” he noted.
Corporate highlights:
-
Apple Inc. is banning a range of new technologies from hundreds of millions of consumers in the European Union, citing concerns raised by the bloc’s regulatory efforts to rein in Big Tech.
-
AMC Entertainment Holdings Inc. is holding confidential talks with some of its lenders about reducing its debt load and extending short-term maturities, according to people with knowledge of the matter.
-
Airbus SE is nearing a deal with Spirit AeroSystems Holdings Inc. to take over parts of the aerospace supplier’s business, paving the way for a majority buyout of the company by older rival Boeing Co. as early as next week.
-
American Airlines Group Inc. is suspending training for new pilots until the end of this year, the latest retreat by a major US carrier in the face of uneven travel demand and delayed planes.
-
A top U.S. Food and Drug Administration official has challenged reviewers to give broad approval to Sarepta Therapeutics Inc.’s gene therapy. for a rare muscle disease in children, despite a lack of data showing that it actually slows the overall progression of the disease.
Some of the main movements in the markets:
INVENTORY
-
The S&P 500 was down 0.2% as of 4 p.m. New York time
-
Nasdaq 100 fell 0.3%
-
The Dow Jones Industrial Average was little changed
-
MSCI World Index fell 0.3%
currencies
-
The Bloomberg Dollar Spot Index is little changed
-
The euro is little changed at $1.0692
-
The British pound was little changed at $1.2649
-
The Japanese yen fell 0.4% to 159.58 per dollar
Cryptocurrencies
-
Bitcoin fell 1.2% to $64,301.01
-
Ether rose 0.4% to $3,538.53
BONDS
-
The 10-year Treasury yield was little changed at 4.25%
-
Germany’s 10-year yield fell two basis points to 2.41%
-
Britain’s 10-year yield advanced three basis points to 4.08%
wares
-
West Texas Intermediate crude fell 0.8% to $80.63 a barrel
-
Spot gold fell 1.6% to $2,322.32 an ounce
This story was produced with the help of Bloomberg Automation.
–With assistance from Carly Wanna, Sagarika Jaisinghani, Cecile Gutscher, Divya Patil, Matthew Burgess and Winnie Hsu.
Most Read from Bloomberg Businessweek
©2024 Bloomberg LP