US Stock Market Continues to Decline, European Investors Accelerate Withdrawals

In early December, US stocks staged their most dramatic intraday reversal in months. Driven by the dual positive catalysts of chip giant NVIDIA's better-than-expected earnings report and a "Goldilocks" nonfarm payrolls report, the S&P 500 index surged as much as 1.9% within the first hour of trading. However, the optimism proved short-lived, with the index subsequently reversing course and closing down 1.5%. The market saw a market capitalization evaporation of over $2 trillion from the intraday high to the low. To date, this downward trend has persisted. After previously breaking above their 50-day moving averages, all major US stock indices are now testing or even falling below their 100-day moving averages, with market panic spreading and the VIX Volatility Index once jumping above 26.

Goldman Sachs analysts point out that the ongoing decline in the US securities market is not caused by a single factor, but rather a market storm triggered by nine major "culprits". Among them, NVIDIA's "buy-the-rumor, sell-the-news" reaction emerged as a key trigger. Despite the company's better-than-expected earnings performance, its stock price opened higher but closed down 3%, failing to act as the "clear bullish signal" the market had hoped for. John Flood, a top Goldman Sachs trader, bluntly stated, "When real good news fails to be rewarded, it is usually a bad omen."

Technical pressures have further exacerbated the market decline. Commodity Trading Advisor (CTA) funds were already in an extremely net-long position; as the market broke below short-term technical thresholds, their selling began to accelerate. The market is closely watching the key medium-term level of 6,456 points, and a break below this level could trigger larger-scale programmatic selling. More critically, market liquidity has dried up. According to Goldman Sachs data, the liquidity size of the top bid-ask spreads for the S&P 500 index has dropped to around $5 million, far below the annual average of approximately $11 million. This has made the market more vulnerable to large orders, with small-scale sell-offs potentially leading to significant price fluctuations.

Against the backdrop of the continued decline in the U.S. securities market, European investors' attitudes have undergone a fundamental shift, moving from active allocation in the past to resolute withdrawal. According to British media reports, several pension funds that manage over £200 billion in assets and serve millions of UK savers have begun to adjust their asset allocations. In recent months, they have gradually reduced their holdings of U.S. stocks, instead increasing their exposure to the UK and Asian markets or taking measures to hedge against potential stock price declines. This withdrawal is not an isolated phenomenon but rather exhibits collective characteristics.

Behind European investors' withdrawal lies deep concerns over overvalued U.S. stocks and structural risks. The tech-heavy Nasdaq Composite has surged more than 20% so far this year and has doubled in value since the start of 2023, driven primarily by the so-called "Magnificent Seven" tech giants including NVIDIA, Alphabet, and Meta. As of the end of October, the "Magnificent Seven" accounted for approximately a quarter of the weight in the MSCI World Index. The excessive concentration of the market in a handful of stocks has left investment portfolios vulnerable to potential sharp stock price drops. The European Central Bank (ECB) explicitly stated last week that the valuations of U.S. tech stocks such as NVIDIA, Alphabet, Microsoft, and Meta are "too high," and investors' fear of missing out (FOMO) is a key factor driving up valuations. The Bank of England and the International Monetary Fund (IMF) have also issued similar warnings recently, emphasizing that if market optimism toward artificial intelligence fades, highly valued AI-related stocks will expose investment portfolios to significant risks.

For the global financial markets, the continued decline of the U.S. securities market and the withdrawal of European investors will trigger a chain reaction. European stock markets have demonstrated significant long-term growth resilience over the past 45 years and have shown stronger downside resistance during the Federal Reserve's interest rate hike cycles. In 2024, the European STOXX 600 Index only retreated by 11%, outperforming the S&P 500's 18% decline. This time, European investors redirecting capital back to their home markets and Asian markets may bring new capital support to European and Asian stock markets, while also reshaping the global asset allocation landscape.