Market Volatility Sparks Shift to Defensive Strategies
Wall Street's most popular trades, from tech stocks to gold and cryptocurrencies, are experiencing a sudden shift towards risk aversion. According to PANews, this change is not driven by a single trigger, unlike the panic-induced market crash last April when U.S. President Donald Trump initiated a trade war. Instead, a series of accumulating news has raised alarms, causing anxiety over asset valuations, which many have suspected to be excessively high, leading investors to withdraw almost simultaneously.
Thursday's market performance underscored this trend: the S&P 500 fell 1.2%, marking its third consecutive day of losses, while the Nasdaq 100 extended its decline, experiencing its deepest pullback since last April. Software stocks continued their downward trajectory, as AI company Anthropic introduced a new model aimed at conducting financial research, highlighting competitive threats from emerging technologies.
Silver prices, which had previously reached historic highs alongside gold, plummeted 17%. Bitcoin dropped 10% in a single day, erasing gains made since Trump won the election 15 months ago, as investors unwound leveraged trades that had turned unprofitable. U.S. Treasury bonds rebounded, reaffirming their role as a traditional safe haven.
Alphabet, Google's parent company, saw its stock under pressure despite exceeding revenue expectations, following the announcement of ambitious spending plans. After the U.S. stock market closed on Thursday, Amazon's stock plunged 10% as the company revealed plans to invest $200 billion this year, far exceeding analyst expectations, amid growing concerns over excessive spending on AI by tech companies.
Recent market movements contrast sharply with Wall Street's sentiment at the beginning of the year, when strategists anticipated the longest rally in U.S. stocks in nearly two decades. These predictions were based on assumptions that the AI boom would persist, a resilient economy would continue to support corporate profits, and the Federal Reserve would lower interest rates.
While this overall outlook largely remains, as evidenced by robust earnings reports released in recent weeks, the market is refocusing on accumulating risks: which companies might be eliminated in the AI wave; the potential direction of monetary policy if Kevin Warsh, nominated by Trump, is confirmed as Federal Reserve Chair; and whether asset valuations, including gold, Bitcoin, and tech giants like Alphabet, are unsustainably high.
Bitcoin's momentum has notably stalled: last year, the speculative frenzy following Trump's victory drove cryptocurrency prices sharply upward, but this month, as investors withdraw en masse, the market has experienced a collapse. On Thursday, Bitcoin's sell-off intensified, affecting other cryptocurrencies, related ETFs, and 'crypto vault' companies like Strategy.
By late Thursday afternoon in New York, Bitcoin had plunged 13%, falling below $63,000, nearly halving from its all-time high four months ago. In the stock market, declines were relatively moderate but widespread, with nine of the S&P 500's 11 major sectors experiencing losses. Besides concerns over which companies might lose in the AI technology wave, investors are questioning whether massive investments in this technology will ultimately yield returns. Alphabet's stock decline reflects this sentiment.
Industry experts note that people are clearly shifting towards more defensive strategies. This resembles a 'shoot first, ask questions later' market environment, with fear and uncertainty evident across the market. The recent pullback reflects market concerns that the hottest stocks and assets like gold have risen too quickly and are due for a 'reckoning.' This is a reset, as momentum may have been overly consumed.
