Goldman Sachs warns: Behind the big dump of US stocks lies a hidden fear of "extreme hedging".

BlockBeats news, on November 21, John Flood, a partner at Goldman Sachs, pointed out that the dramatic reversal of U.S. stocks on Thursday highlighted that Nvidia's outstanding performance did not provide traders with the expected “risk-off” signal, but rather prompted them to urgently build defenses to avoid further losses. The early gains in U.S. stocks on Thursday quickly evaporated. The S&P 500 index surged 1.9% in the first hour of trading but turned to decline before 1 PM local time—creating the largest intraday fluctuation since the market turmoil in April, erasing over $2 trillion in market capitalization from the day's peak, and closing below the 100-day moving average for the first time in months. The fear index VIX soared above 26. This severe reversal occurred against the backdrop of Nvidia releasing historic financial results, causing traders to frantically seek explanations. Various theories emerged: from the mixed September non-farm payroll report raising doubts about the Fed's ability to cut rates, to concerns over excessive valuations, and the potential technical dynamics that could lead fast-money funds to continue dumping. “The market is currently filled with old scars,” Flood wrote in a client report, “and it is extremely focused on hedging 'crowded risks', with investors entering a pure profit and loss protection mode.” The Goldman Sachs trading department observed a surge in shorting activities in the macro product sector, covering trading platform ETFs, customized baskets, and futures products. Flood noted that since 1957, there have been eight instances (including Thursday) where the S&P 500 opened up more than 1% but closed down. The positive aspect is that the average market performance after such events is favorable, with gains of at least 2.3% the next day and the following week averaging a rise of 4.7%. “Such reversal events will prompt investors to reassess their risk exposure,” Flood concluded. (Jin10)