4 min read
A sell-off in the U.S. stock market sent shockwaves through risk assets on Thursday, cratering investor sentiment and pulling Bitcoin down to its lowest level in seven months.
After an initial uptick, the S&P 500 index dropped nearly 4% on Thursday. Nvidia’s stellar earnings report-driven rally also took a U-turn, dropping more than 8%.
The sell-off was a common theme across the index’s breadth, leading to a market-cap wipeout of more than $2.7 trillion, according to Bloomberg reporting. By comparison, crypto's market cap stands at just above $3 trillion, after shedding 7% on Thursday.
As a result, sentiment across the board tanked, dropping into the “extreme fear” territory for U.S. equities and crypto, even as the S&P 500 hovers less than 6% away from its recent peak near 6,920.
Bitcoin, too, was sent reeling, extending last week’s losses to revisit the $85,000 level for the first time since April, CoinGecko data shows. Crypto market liquidations spiked to $829 million.
The Bureau of Labor Statistics' release of the November jobs report on December 16 could be the reason behind Thursday’s U.S. equity selloff, according to a Thursday tweet from The Kobeissi Letter.
“In our view, this headline was, AT BEST, partially to blame. Rather, we view the decline as a mechanical move and a broader indication of shifting market dynamics.”
Analysts believe a cocktail of macroeconomic fears and technical market forces is driving the recent risk asset sell-off and sentiment dip.
While many pundits cite lingering AI bubble concerns or Friday's options expiry for the recent drop, Peter Chung, head of research at Presto Research, told Decrypt that “looming risk in private credit risk highlighted by Fed Governor Lisa Cook last night” remains an under-discussed topic.
“The possibility of a December rate cut has faded as Fed officials remain divided and cautious.” Jay Jo, senior research analyst at Tiger Research, told Decrypt. “Strong jobs data and Lisa Cook’s comments raised macroeconomic risk, pushing markets into a short-term correction.”
Simply put, U.S. credit spreads are the difference in yield between corporate bonds and U.S. Treasury bonds. As the difference grows, it reflects increased investor perception of risk and economic uncertainty, highlighting the higher perceived likelihood of corporate default. Investors often expect a potential downturn when the spreads widen.
“U.S. credit spreads have widened slightly but remain moderate, with limited systemic stress,” Tim Sun, senior researcher at HashKey Group, told Decrypt.
“Objectively speaking, yesterday’s decline had little to do with specific news catalysts—fear was transmitted mainly through sentiment and liquidity dynamics,” Sun noted, explaining that the drop was from investors who purchased put hedges before the Nvidia earnings and Nonfarm payrolls event.
“Once these events were released and uncertainty quickly dissipated, an implied volatility crush occurred, forcing market makers to sell long positions, which triggered the initial drop,” the analyst explained. “Trend-following strategies further amplified the decline as prices subsequently broke through key technical levels.”
“If the private credit risk indeed becomes a contagion, it may actually tilt the Fed more in favor of the rate cut during the December FOMC meeting,” Presto’s Chung added. “That should be positive for all risk assets, including crypto.”
The odds of a December rate cut have plummeted from near certainty a month ago to just 35%, according to the CME’s FedWatch tool.
“This sharp deterioration in sentiment looks more like a repricing of macro expectations that triggered position adjustments rather than a fundamental collapse,” HashKey’s Sun noted.
If the upcoming economic data releases warrant a rate cut, the outlook could improve, but strong upward momentum would require additional macro tailwinds, the analyst said.
Given the current macroeconomic outlook and the resulting investor sentiment, experts forecast an extended choppy market amid year-end portfolio rebalancing flows.
“Most investors are dealing with too many unknowns all at once”, Lawrence Samantha, CEO of crypto asset management platform NOBI, told Decrypt. “When uncertainty piles up, both retail and institutional players tend to reduce risk quickly. Automatic trading systems also start selling, and this pushes fear even higher.”
Decrypt-a-cookie
This website or its third-party tools use cookies. Cookie policy By clicking the accept button, you agree to the use of cookies.