For the day traders who pile into the hottest stocks, Tuesday was the worst session since the April chaos caused by Donald Trump’s trade war.
The Retail Favorites Index — a Goldman Sachs Group Inc. basket of stocks heavily owned by non-professional traders — was hit particularly hard by the selloff that followed a disappointing earnings report from Palantir Technologies Inc. and a filing showing a famous hedge fund manager made bearish wagers last quarter on the stock and the chipmaker Nvidia Corp.
That, as well as a slump in Bitcoin that added to the pressure on individual investors, drove the index down 3.6%, roughly triple the slide in the S&P 500.
It was the biggest decline for the gauge since April 10, when stocks plunged on concern over the US president’s tariff rollout. The index includes Palantir, Tesla Inc., Reddit Inc. and Robinhood Markets Inc., among other stocks.
The day-trading crowd had been riding the artificial-intelligence boom that sent major indexes to record highs this year and nursed ongoing fears of a building speculative bubble.
They continued to be active on Tuesday, buying $560 million worth of individual stocks and exchange-traded funds through 11 a.m. in New York even after stock prices opened sharply lower, according to data compiled by JPMorgan Chase & Co. That may have helped nurture a rebound early in the day, when the S&P pared its losses, only to then reverse course again and resume its slide.
“We tried to rally in the morning, and we just failed,” said Melissa Armo, CEO of the Stock Swoosh LLC, an educational platform for traders, describing the market’s action. “That’s what happens when people panic and selling starts.”
Palantir, which was a day-trader favorite after surging sharply this year, slumped on concerns over the software company’s lofty valuation and the sustainability of the broader artificial-intelligence rally.
Hedge fund manager Michael Burry — who has attracted fame for his portrayal in the book and film The Big Short, about his prescient bets on the US housing-market collapse — added to the selloff with his disclosure of bearish wagers on Palantir and Nvidia. The 13F regulatory filing came just days after he posted a cryptic warning to retail investors about market exuberance.
Meanwhile, retail traders were also stung by a selloff in Bitcoin, which hurt cryptocurrency-linked stocks. Bitcoin fell below $100,000 for the first time since June. The losses came three weeks after a historic liquidation event that wiped out billions in leveraged crypto positions.
Armo said she’s preparing for another downward swing on Wednesday and encourages traders, if they can handle some “pain,” to prepare a list of stocks they might want to buy.
“As long as they can handle the pain,” she said. “If not, then I’d say sell.”
Written by: Joel Leon and Geoffrey Morgan @Bloomberg
The post “Retail Traders Post Worst Day Since April as Tech Rally Stumbles” first appeared on Bloomberg
