S&P 500 Volume Surges, Nvidia's Rollercoaster Ends in Decline

On Friday, the U.S. stock market's "Triple Witching Hour" came to a close, with nearly $5.5 trillion worth of options expiring on Wall Street, coupled with significant ETF rebalancing triggered by the end-of-quarter index adjustments, leading to intense market volatility.

U.S. exchanges saw a turnover of 18 billion shares that day, a surge of 55% compared to the average over the past three months. The trading volume of the S&P 500 index at the close was 30% higher than the usual daily average.

NVIDIA was undoubtedly the main character. According to statistics, among the $5.5 trillion worth of various securities derivatives expiring on Friday, the value of derivatives contracts related to NVIDIA ranked second, just behind the S&P 500 index.

The U.S. stock market's "Triple Witching Hour" refers to the simultaneous expiration of stock options, stock index futures, and stock index options contracts on the same trading day. This occurs four times a year, on the third Friday of March, June, September, and December. The expiration of a large number of options on the "Triple Witching Hour" means that traders need to adjust their positions, so the market trading volume usually increases significantly on this day, leading to sharp price fluctuations.

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Steve Sosnick, an analyst at Interactive Brokers, pointed out that the technology industry ETF with a scale of up to $80 billion (ticker symbol XLK) will be key to this index adjustment. Due to restrictions on the proportion of heavy stock holdings, XLK needs to sell some of its Apple shares and buy NVIDIA on Friday.

Sosnick said, "After the adjustment, NVIDIA's weight in the index will rise significantly, while Apple's will decrease. Considering the importance of large-cap technology stocks (especially NVIDIA) to the ETF index, it is reasonable for traders to be cautious about excessive fluctuations later in the day."

On the "Triple Witching Hour" day, the S&P 500 index fell slightly to 5,465 points, with trading volume at the close 30% higher than the usual daily average. NVIDIA's share price fell by about 5% during the day, rebounded, and then fell again at the close, ending down 3%. Over the past two trading days, the market value has evaporated by more than $220 billion.

All roads lead to NVIDIA, and analysts warn that the AI craze may overvalue the technology industry.

Michael Hartnett, a strategist at Bank of America, pointed out that the AI craze made NVIDIA the world's most valuable company at one point this week and also drove a record inflow of funds into technology ETFs. According to EPFR Global data, about $8.7 billion flowed into technology ETFs in the week ending June 19.

Hartnett said that the "all roads lead to NVIDIA" trade was supported again amidst French political turmoil. However, even though investors still feel the need for more AI-related investments, "all asset allocators are concerned about equity concentration risk."Keith Lerner of Truist Advisory Services stated that, given the technology sector's significant outperformance over the S&P 500 Index since November under their "overweight" recommendation, the firm has downgraded the technology sector rating to "neutral."

Lerner said, "Although we remain bullish on the long-term prospects of technology stocks, in the short term, the sector's valuation appears to have exceeded reasonable limits, and we will not chase the industry. That being said, technology stocks are still far from a 'bubble,' and we believe that the long-term positive factors surrounding AI will continue to exist."

The剧烈 fluctuations during this triple witching day may just be the beginning, and investors need to prepare for the second half of 2024 and the Federal Reserve's next moves.

Solita Marcelli of UBS Global Wealth Management pointed out, "The second half of 2024 is a period of transformation and volatility, and investors should be prepared for dramatic changes."

John Stoltzfus, a market analyst at Oppenheimer Asset Management, said he remains optimistic about the stock outlook because the fundamentals are expected to improve this year.

Stoltzfus stated, "History tells us that the prices of stocks and other assets do not rise in a straight line but gradually increase in an environment filled with concerns and uncertainties. This requires a prudent diversification strategy, patience, and tolerance for risk and volatility for private investors, as well as discipline."