After experiencing nine consecutive sessions of gains, Wall Street suddenly took a downturn approximately one and a half hours before the closing bell on Wednesday, resulting in the S&P 500 suffering its worst daily losses since September.
Following this sell-off, the downward trend extended to the Asia-Pacific region overnight, with Japan’s Nikkei 225 leading the overall losses across the region. Moreover, European stocks also turned negative on Thursday morning.
The sudden end to the recent rally, which was initially ignited by the U.S. Federal Reserve’s declaration last week of at least three interest rate cuts projected for 2024, can be attributed to various factors.
Some analysts suggest that Wednesday’s sell-off occurred simply due to investors capitalizing on profits after a nine-day bullish run. Additionally, with U.S. stocks widely perceived as being overbought, this provided another reason for the market decline.
Furthermore, market observers highlighted a substantial volume of zero-day options trading as a potential reason for the end of the winning streak. These risky put options, increasingly favored by retail traders, expire on the same day they are traded.
SpotGamma, a market monitor, revealed that the bearish zero-day options flows closely matched the overall flows on Wednesday. This indicates that a significant portion of the losses may be attributable to these derivative trades
Source (CNBC)
