Once upon a time it took a lot more money to increase the value on the stock market, today It only takes a little money to make it go up a lot. But then even to make it go down, a little money is enough. When the US stock market starts to give way, it is enough for a few tens of billions to come out and thousands of billions of stock market value disappear, like this morning.
Why:
1) Since around 2011 laws for the management of pension funds in the US they force them to give all their money to #Vanguard, #State #Street, #Blackrock and a few other mega “PASSIVE” funds that always buy automatically, only based on the flow of money. For these mega funds it only matters if they have received money from pension funds, it does not matter the stock market price, the news, the balance sheets, the profits, the interest rates…. If the price of Nvidia goes from 10 to 100 and then to 140$ they continue to buy mechanically only because Nvidia “weighs more” in the S&P 500 index and they have to automatically buy the entire index… But if one day they have an outflow of money, they do not buy even if the price collapses by 60%. Because they have a computer that buys and sells “blindly” only based on the flow of money.
3) The US stock market is driven by the purchases of tens of millions of options every day on indices and single stocks, compared to pre-Covid, volumes have increased by 4 times, 73 million options per day. Obviously buying options on a stock requires less money. Each option has under 100 shares. If the shares cost $50 each, you spend $5,000. But the typical option costs 5% of the value, or at most $5. If you spend $5,000 to buy 1,000 options, it is equivalent to 1,000 x 100 = 100 thousand shares…
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