📢 Flash
U.S. Equity Sell-Off Recap: Retail Investors Led the Way, Hedge Funds and Institutions Followed, While Mechanical Deleveraging Amplified the Decline
On November 7, Bloomberg reported that Wall Street sentiment deteriorated sharply within roughly 24 hours after the U.S. midterm elections: U.S. equities—initially rising amid fading event-related risks and falling oil prices—quickly shifted into a deep correction. Within the first half-hour after Thursday’s market open, retail investors led the way in taking profits; hedge funds, long-only asset managers, and quantitative strategies followed suit with synchronized selling, causing total U.S. equity market cap to shrink by approximately $370 billion that day. The Nasdaq-100 Index posted its largest single-day decline since March 2020.
According to Vanda Research data, retail investors’ net selling of individual stocks on that day ranked just below the two trading days during March 2020 when the pandemic triggered a market crash. Its strategist Viraj Patel noted that such capital flows—where retail and systematic investors sell aggressively in tandem while institutional buyers collectively step aside—typically occur only during genuine market stress episodes.
Selling pressure was further amplified by multiple mechanical sell orders. Nomura Securities strategist Charlie McElligott estimated that, based on negative gamma exposure levels observed intraday Thursday, every 1% drop in the S&P 500 would trigger an additional ~$7 billion in sell-side hedging activity by options market makers. Volatility-control funds were estimated to require ~$61 billion in equity sales, based on prevailing market moves at the time—while ~$25 billion in sales from the prior day (Wednesday) remained incomplete. Leveraged ETFs’ rebalancing activity at Thursday’s close added another ~$4.7 billion in equity selling.
As major indices broke below key technical support levels, trend-following strategies accelerated their exits. Vanda estimated that commodity trading advisors (CTAs) sold approximately $13 billion across S&P 500 and Nasdaq futures contracts, compressing their exposure to these assets near the lowest range ever recorded by the firm. Goldman Sachs’ prime brokerage trading desk estimated that fundamental long/short funds incurred losses of ~1.3% on Thursday alone, technology-themed funds fell over 4% in a single day, and year-to-date gains were nearly fully erased.
At the sector level, stock baskets tied to memory chips, optical networking, data centers, and AI semiconductors plunged 12%–15% in a single day; the S&P 500 index excluding AI-related stocks declined 2.3%; memory and optical networking baskets were down nearly 50% from their June highs. The fear gauge—the VIX Index—surged from 16.6 at Thursday’s open to nearly 28 at the close.
Markets showed initial signs of stabilization on Friday, with chip stocks leading gains and lifting the S&P 500; the Nasdaq-100 Index rebounded as much as 2.6% intraday, though sustainability remains uncertain. Nick Colas, co-founder of DataTrek Research, characterized this selloff as an “unpleasant but necessary” reset of overly optimistic prior expectations. He maintains long-term confidence in U.S. large-cap equities and expects markets to gradually stabilize within the coming week.
According to Vanda Research data, retail investors’ net selling of individual stocks on that day ranked just below the two trading days during March 2020 when the pandemic triggered a market crash. Its strategist Viraj Patel noted that such capital flows—where retail and systematic investors sell aggressively in tandem while institutional buyers collectively step aside—typically occur only during genuine market stress episodes.
Selling pressure was further amplified by multiple mechanical sell orders. Nomura Securities strategist Charlie McElligott estimated that, based on negative gamma exposure levels observed intraday Thursday, every 1% drop in the S&P 500 would trigger an additional ~$7 billion in sell-side hedging activity by options market makers. Volatility-control funds were estimated to require ~$61 billion in equity sales, based on prevailing market moves at the time—while ~$25 billion in sales from the prior day (Wednesday) remained incomplete. Leveraged ETFs’ rebalancing activity at Thursday’s close added another ~$4.7 billion in equity selling.
As major indices broke below key technical support levels, trend-following strategies accelerated their exits. Vanda estimated that commodity trading advisors (CTAs) sold approximately $13 billion across S&P 500 and Nasdaq futures contracts, compressing their exposure to these assets near the lowest range ever recorded by the firm. Goldman Sachs’ prime brokerage trading desk estimated that fundamental long/short funds incurred losses of ~1.3% on Thursday alone, technology-themed funds fell over 4% in a single day, and year-to-date gains were nearly fully erased.
At the sector level, stock baskets tied to memory chips, optical networking, data centers, and AI semiconductors plunged 12%–15% in a single day; the S&P 500 index excluding AI-related stocks declined 2.3%; memory and optical networking baskets were down nearly 50% from their June highs. The fear gauge—the VIX Index—surged from 16.6 at Thursday’s open to nearly 28 at the close.
Markets showed initial signs of stabilization on Friday, with chip stocks leading gains and lifting the S&P 500; the Nasdaq-100 Index rebounded as much as 2.6% intraday, though sustainability remains uncertain. Nick Colas, co-founder of DataTrek Research, characterized this selloff as an “unpleasant but necessary” reset of overly optimistic prior expectations. He maintains long-term confidence in U.S. large-cap equities and expects markets to gradually stabilize within the coming week.
