"Three Witching Days" Grand Finale: S&P 500 trading volume soared at the close, NVIDIA "roller coaster" finally closed lower

On Friday, the curtain fell on the "Triple Witching Day" in the US stock market, with options worth nearly $5.5 trillion expiring on Wall Street, coupled with ETF major repositioning triggered by end-of-quarter index adjustments, leading to intense market volatility.

The US exchanges saw a turnover of 18 billion shares on that day, a 55% surge from the average level of the past three months, with the S&P 500 index's closing trading volume increasing by 30% compared to the daily average.

NVIDIA was undoubtedly the protagonist. According to statistics, among the various securities derivatives worth $5.5 trillion expiring on Friday, derivative contracts related to NVIDIA ranked second in value, only behind the S&P 500 index.

The "Triple Witching Day" in the US stock market refers to the simultaneous expiration of stock options, stock index futures, and stock index options on the same trading day. This situation occurs four times a year, on the third Friday of March, June, September, and December. The large number of options expiring on the "Triple Witching Day" means that traders need to adjust their positions, leading to a significant increase in market trading volume on that day and causing drastic price fluctuations.

Steve Sosnick, an analyst at Interactive Brokers, pointed out: the $80 billion Technology Sector ETF (ticker XLK) will be crucial in this index adjustment. Due to restrictions on the concentration of holdings in heavyweight stocks, XLK needs to sell some Apple shares on Friday and buy NVIDIA.

Sosnick said: "After the adjustment, NVIDIA's weight in the index will increase significantly, while Apple's will decrease. Considering the importance of mega-cap tech stocks (especially NVIDIA) to ETF indices, it is reasonable for traders to remain cautious about excessive volatility later in the day."

On the "Triple Witching Day," the S&P 500 index fell slightly to 5465 points, with the closing trading volume 30% higher than the daily average. NVIDIA fell by about 5% intraday, rebounded, then fell again at the close, ultimately closing down by 3%. The market value evaporated by over $220 billion over the past two trading days.

All roads lead to NVIDIA, analysts warn of overvaluation in the tech industry due to AI hype

Michael Hartnett, a strategist at Bank of America, pointed out that the AI frenzy that briefly made NVIDIA the world's largest company this week also drove record inflows into tech ETFs. According to EPFR Global data, approximately $8.7 billion flowed into tech ETFs in the week ending June 19 Hartnett said, "All roads lead to NVIDIA" transactions have once again received support amid political turmoil in France. However, despite investors still feeling the need for more AI-related investments, "all asset allocators are concerned about equity concentration risk."

Keith Lerner of Truist Advisory Services stated that given the significant outperformance of the technology sector since November under their "overweight" recommendation, the company has downgraded the technology sector rating to "neutral."

Lerner said, "While we remain positive on the long-term prospects for tech stocks, in the short term, valuations in the sector appear to have exceeded reasonable levels, and we will not chase the sector. That being said, tech stocks are still a distance away from a 'bubble,' and we believe the long-term bullish factors around AI will continue to exist."

The sharp volatility on the triple witching day may just be the beginning, and investors need to prepare for the second half of 2024 and the next steps by the Federal Reserve.

Solita Marcelli of UBS Global Wealth Management pointed out, "The second half of 2024 is a period of transition and volatility, and investors should be prepared for dramatic changes."

Market analyst John Stoltzfus of Oppenheimer Asset Management remains optimistic about the outlook for stocks this year as fundamentals are expected to improve.

Stoltzfus said, "History tells us that prices of stocks and other assets do not rise in a straight line, but gradually increase in an environment filled with concerns and uncertainties, which requires cautious diversification strategies, patience, tolerance for risk and volatility from individual investors, as well as discipline."