Are We There Yet? Stocks Are Halfway to a Correction but Haven’t Capitulated.

Tech stocks led the market’s biggest intraday swing since April on Thursday. And there’s more volatility ahead. (Getty Images)

Key Points

• The stock market experienced its biggest intraday swing since last April, with the S&P 500 down 5.1% from its late October peak.
• Nvidia’s strong earnings and outlook were insufficient to prevent a tech sector selloff, indicating overheated positioning and expectations.
• Bitcoin’s collapse, down over 34% from its early October peak, likely triggered margin calls, leading to sales of liquid assets.

Stocks don’t often slump when the biggest companies in the market blast earnings forecasts and issue a robust near-term demand outlook. And they don’t usually fall in the wake of economic data that is strong enough to suggest steady job growth but not to the point of stoking inflation.

The stock market’s wild ride on Thursday, however, broke a lot of rules. And raised a lot of questions.

It was the market’s biggest intraday swing since last April, and one of only eight sessions over the past 75 years where stocks opened 1% higher only to finish in the red, according to Goldman Sachs. That has the S&P 500 down 5.1% from its late October peak and halfway toward a correction that few were predicting even a few days ago.

“This drop felt different because it hit on a ‘good news’ day for artificial intelligence,” said Ruben Dalfovo, investment strategist at Saxo Bank.

“Strong earnings and upbeat guidance from key names weren’t enough to keep prices rising,” he added. “That usually means positioning and expectations have run very hot.”

Nvidia’s better-than-expected third-quarter earnings report got things rolling late Wednesday, and the chip maker’s near-term demand outlook appeared to soothe concerns over the pace of AI spending heading into 2026.

But investors appeared to take the read from Nvidia CEO Jensen Huang’s bullish forecast that companies are more focused on winning the AI landgrab than maintaining cost discipline or preserving their balance sheets.

And with the Federal Reserve now likely to wait until January to resume its interest-rate easing, the arithmetic of the AI investment trade needed a rethink.

That was reflected in both the speed of the tech sector selloff, which saw the Nasdaq Composite tumble more than 1,000 points from its early morning peak into the close, and the extended surge in the Cboe Group’s VIX index, the market’s go-to volatility gauge.

Now at the highest levels since April, the VIX is suggesting daily swings of around 1.6%, or 106 points, for the S&P 500 each day into the end of the year.

Bitcoin’s recent collapse is also a major complication. The world’s biggest digital currency is down more than 34% from its early October peak, and has fallen more than 25% so far this month.

The sharp price decline has likely triggered margin demands on various crypto exchanges, which in turn prompts the sale of liquid assets (often tech stocks) in order to raise cash. That unwind remains embedded in markets heading into the start of the Friday session.

And with stocks now south of their 50-day moving average, a key performance benchmark, and few if any headline events likely to power markets higher over the near term, an end-of-year rally looks increasingly challenging.

But certainly not impossible. December remains one of the strongest months of the year for stocks, helped in part by the so-called Santa Claus rally that typically lifts indexes over the final trading days of the year.

Data on travel and spending also suggest a robust holiday season, with shoppers planning to spend around $1 trillion from Thanksgiving to Christmas, the biggest on record.

Tailwinds from tax cuts, bets on Fed rate cuts in the early months of next year, and falling oil prices should also support sentiment.

But it still may be a rough ride.

Write to Martin Baccardax at martin.baccardax@barrons.com