Nvidia reported an unprecedented 62% growth in Q3 earnings on Wednesday evening, Nov. 19, but despite that, AI stocks kept falling after a short surge, ending in red on Nov. 20. The trading day ended for Nvidia with a loss of over 3%; other tech stocks also fell, with AMD being particularly hard hit with a daily loss of almost 8%. Intel shares also fell by more than 4%.
Looming behind stock market performances is the liquidity crisis. Investors in need of liquidity have sold stocks, mostly going into Treasuries. Bank of America, in a survey reported by Bloomberg, wrote that “Investors’ cash positions dropped below a critical threshold … triggering a so-called sell signal for equities.” “The average cash held by global fund managers fell to 3.7%, something that has only occurred 20 times since 2002. Stocks declined and Treasuries outperformed in the following one to three months each time that happened, strategist Michael Hartnett wrote in a note.”
At the same time, Fed officials are warning of the risk posed to the bond market by the dimension of hedge funds speculations on Treasuries. “Fed board governor Lisa Cook said on Thursday [Nov. 20] that funds’ so-called basis trades, which take advantage of tiny price discrepancies in Treasuries, risked making the $30 trillion market “more vulnerable to stress, and in extreme cases could impact market functioning,” the Financial Times reported.
