Investors are withdrawing their funds from the US stock market, according to the latest data. Bank of America quoted EPFR Global data as saying that in the two weeks up to Wednesday, investors had redeemed US$21.1 billion (equivalent to about RMB 150 billion) from equity funds, the largest redemption amount since December 2022, while the bond market received US$5.7 billion in capital inflows during the same period.
As America's strong economy and high inflation worry the market, the Federal Reserve will keep interest rates higher for longer. In the face of hot inflation and the job market, traders have reduced their bets on cutting interest rates. The escalation of the Middle East conflict also affected risk appetite, as people feared that it would cause energy prices to rise, further delaying the Federal Reserve's easing policy.
It is worth noting that on Friday, a number of US technology companies were hit by “air raids,” and their stock prices plummeted. By the close of the day,$Super Micro Computer (SMCI.US)$It plummeted 23% and dragged down, including$NVIDIA (NVDA.US)$Including stocks, Nvidia fell 10%, and the market value evaporated by more than 200 billion US dollars overnight. Also, the streaming giant$Netflix (NFLX.US)$It plummeted by more than 9%, and its single-day market value also shrunk by 23.9 billion US dollars.
Ultramicrocomputers, Nvidia, and Netflix plummeted
On Friday, the three major US stock indices closed with mixed gains and losses. The Dow rose 0.56%, the NASDAQ fell more than 2%, and S&P fell 0.88%. Technology stocks fell collectively, with ultra-microcomputers falling more than 23%, Nvidia falling 10%, and Arm falling nearly 17%. Streaming giant Netflix also dropped more than 9%.
On the same day, Ultramicrocomputer said in a brief press release that it will announce the results for the third fiscal quarter on April 30. However, the company broke the previous practice of providing initial results, which raised concerns among investors and frantically reduced their holdings of the stock. The market generally believes that ultra-microcomputers have not given a positive advance statement, which is viewed as negative. In particular, this is currently at a time when the field of artificial intelligence is important, which heightens market concerns.
Ultramicrocomputers produce computers and sell them to enterprises for business such as web servers, data storage, and AI training. Nvidia, NASA,$Microsoft (MSFT.US)$They are all ultra-microcomputer partners. The sharp drop in ultra-microcomputer stock prices has also hurt AI giant Nvidia. On Friday, Nvidia plummeted 10%, the biggest daily decline since March 2020, and its market capitalization evaporated by US$211.8 billion in one day. Actually, this isn't the first time that ultra-microcomputers have brought down AI concept stocks such as Nvidia. On August 9, 2023, ultra-microcomputers plummeted by more than 23% in one day, which dragged Nvidia down nearly 5%.
The stock price of American streaming giant Netflix also plummeted by more than 9%. The company's newly announced first-quarter results exceeded expectations, but Netflix threw a “bomb” in its earnings report, saying that it will stop reporting the growth rate of paid members and average user revenue (ARM) from the first quarter of 2025, and only report “milestones” for specific users. The news that new user data was no longer being released triggered a wave of investors selling the stock.
According to the data, as of the first quarter of 2024, Netflix achieved revenue of 9.370 billion US dollars, an increase of 14.8% over the previous year, higher than market expectations of 9.26 billion US dollars; realized net profit of US$2,332 billion. The company expects to achieve revenue of US$9.491 billion in the second quarter, up 15.9% year over year, slightly below market expectations of US$9.5 billion.
In terms of subscribers that received the most attention from investors, Netflix's total number of paid members reached 269.6 million in the first quarter, an increase of 16% over the previous year, exceeding market expectations. Netflix added 13.1 million paid subscribers in the fourth quarter of last year, and 9.33 million new paid subscribers in the first quarter of this year.
Regarding next quarter's guidance, Netflix warned that “seasonal factors will cause the increase in users in the second quarter to be lower than in the first quarter,” suggesting that the positive trend in user growth may slow down. Netflix also said in its earnings report that it will stop reporting the growth rate of paid members and average user revenue (ARM) from the first quarter of 2025, and only report “milestones” for specific users.
The market has mixed reviews about this major change in Netflix's information disclosure. Some investors are worried that this change may indicate a slowdown in the growth rate of Netflix users. Although Apple and$Amazon (AMZN.US)$Other tech giants have never revealed data on users of their streaming services, but$Disney (DIS.US)$,$Warner Bros Discovery (WBD.US)$und$Paramount Global-B (PARA.US)$Other streaming services and others insist on disclosing data.
Redemption of more than 150 billion yuan in two weeks
A team led by Bank of America strategist Michael Hartnett (Michael Hartnett) pointed out in the latest report that the strong performance of the US economy and the persistence of inflation have rekindled the market's concerns about “higher and longer” interest rates, and investors are withdrawing funds from the stock market.
Bank of America quoted EPFR Global data as saying that in the two weeks up to Wednesday, investors had redeemed US$21.1 billion from equity funds, equivalent to about RMB 150 billion. This means that the US stock market experienced its biggest two-week outflow since December 2022.
The report points out that considering the trend of rising inflation, the better the US economy now, the farther away the Fed is to cut interest rates. The so-called “good news for the US economy has become bad news for the stock market”. This is the complete opposite of the mentality of investors in the first quarter when looking forward to the “Golden Girl market.”
In the first quarter, investors viewed good economic data as a positive impact on the company's profits. Although this lowered expectations that the Federal Reserve would cut interest rates, some monetary easing policies were viewed as almost certain. However, as economic data continues to be flexible, interest rate cuts are being further delayed, and some policymakers have even said that further rate hikes are not impossible.
After experiencing strong performance in the first quarter, US stocks declined in April. Faced with inflation and the hot job market, interest rate cuts were expected to fall from 7 to less than 2 at the beginning of the year, and the escalation of the Middle East conflict also affected risk appetite. Some analysts pointed out that market concerns that the geopolitical conflict would cause energy prices to rise and inflation to continue to rise, thus further delaying the Fed's easing point. Bank of America strategist Michael Hartnett said that risk assets were adjusted in the second quarter as the market viewed continued strong US data as negative data.
Michael Hartnett said that bulls see this pullback as “healthy,” while bears are increasingly wary of US growth stocks as they strive to break through new highs. Meanwhile, high-yield bonds are also showing ominous signs. US stocks may transition to an even worse bad news = bad news state.
Wall Street Warnings
According to Bloomberg, recently, top Wall Street strategists said that exposure to stocks is now so high that once investors begin to reduce their long positions, any weakness could trigger an even greater sharp decline.
Currently, S&P 500 has long positions of $52 billion, of which 88% are in loss. Citigroup strategist Chris Montagu believes this situation is a risk to the market. Chris Montagu said in a report: “If the market turns negative, investors are likely to act faster and in larger numbers because a large number of long positions are already in the red.”
The warning against investors' bullish positions comes at a time when concerns about US interest rate hikes, weakening economic growth momentum in some countries, and tension in the Middle East have intensified the sell-off in global stock markets.
According to Goldman Sachs trading department data, commodity trading advisors (funds that use systematic strategies to trade futures contracts) have bullish bets worth around $170 billion on the global stock market. These funds will need to sell off $29 billion in global stock futures in this week's declining markets. If stocks continue to fall, up to $290 billion of shares will need to be sold next month. This figure includes $59 billion worth$S&P 500 Index (.SPX.US)$futures.
Currently, US stocks are facing two major adverse factors: interest rate cut expectations are cooling down, and geopolitical risks. After the US released higher-than-expected inflation and retail data, the market reduced its bets on the possibility that the Fed would cut interest rates. Currently, there are more and more expectations that the Federal Reserve may only start cutting interest rates in September, cutting interest rates once or twice throughout the year. Furthermore, after Iran's unprecedented attack on Israel, geopolitical tension intensified, which also exacerbated capital market turmoil. Citibank strategist Chris Montagu said: The flow of funds shows that investors in most markets were already reducing risk before uncertainty increased. The remaining long positions are already showing small losses, and this position setup could amplify any negative market reaction.
Chris Vermeulen, chief investment officer of Technical Traders, warned that the US stock market has been in a long-term bull market, but there are signs that it will eventually lose momentum and will inevitably usher in a bear market and a difficult “reset.” The investment director mentioned the recent rise in defensive assets such as precious metals, energy stocks, and industrial stocks. He said that these sectors usually perform well in the late stages of a bull market, and a bear market or “financial reset” will inevitably occur after a bull market.
However, analysts with the title of “Wall Street magic operator” warned investors not to take advantage of the stock market's decline to buy now, because there will be a wave of sell-off in the next few weeks before the market actually bottoms out. Tom Lee (Tom Lee), head of research at Fundstrat and one of the most optimistic stock forecasters this year, warned investors looking for opportunities in the US stock sell-off. Affected by the hot March inflation report, the escalation of tension in the Middle East, and the postponement of the Federal Reserve's interest rate cut expectations, US stocks fell this week, and the S&P 500 index has been falling for four consecutive days. However, Tom Lee said that speculative investors should not rush into the market now. He pointed out that VIX, the market volatility indicator, is soaring. He warned that rising volatility usually triggers investors to sell off, which could put pressure on the stock market in the short term.
Editor/Jeffrey