Wall Street’s ‘No Sellers Left’ Short Squeeze Lifts Stocks Despite Bad News
TREE NEWS reports: In a week that delivered a barrage of negative headlines—Nvidia’s founder departing amid scandal, a third consecutive hot CPI print, PPI at a four-year high, and Fed officials floating a 50-basis-point December hike—US stocks defied gravity. The S&P 500 rose 2% for the week, and the Philadelphia Semiconductor Index posted its best weekly performance since April. The rally wasn’t driven by fundamentals but by a classic short squeeze: there were simply no sellers left.
What Happened
Nvidia CEO Jensen Huang resigned Thursday after admitting to extramarital affairs, triggering a 12% intraday drop that was quickly bought up by retail investors—who purchased 41 times the normal volume. The stock closed down only 4-5% that day, though it fell 11% for the week. Capital didn’t flee AI; it rotated into AMD (+30%) and Broadcom (+24%).
Meanwhile, macro data came in hot. Core CPI doubled expectations, and PPI rose 6.5% year-over-year. Fed officials, including Christopher Waller, Lorie Logan, and Bowman, signaled a faster tightening path. Goldman Sachs now sees a peak fed funds rate of 4.25-4.50% and pushed the first rate cut to December 2027. The 2-year Treasury yield surged 35 basis points—its biggest weekly jump since October 2024—while the 10-year broke above 5.15%.
Yet equities held firm. Goldman’s Prime data showed hedge funds had already slashed leverage during the midterm election week, with net leverage falling to 43.3%, a five-year low. With shorts largely cleared out, bad news met no selling pressure, and the market squeezed higher. The VIX plunged 27% to 18.7, its largest weekly drop in a year.
Market Implications
The divergence between stocks and bonds is unsustainable. While equities rallied on positioning, the bond market absorbed the macro shock alone. The 10-year yield’s break above 5.15% and the 30-year auction tailing at 5.441% signal that supply and inflation concerns are mounting. Credit markets appear calm on the surface, but cracks are widening: CCC spreads have widened 270 basis points in three months, and chip-sector CDS now exceed those of hyperscalers.
Oil also reversed sharply after Trump closed the door on diplomacy with Iran, saying “we don’t need a deal.” Brent settled near $96, and the risk premium is back.
Fund flows show investors are returning to equities but favoring Europe ($35.1 billion inflow, the largest since June 2021) and US large caps, while money market funds saw $37.5 billion in outflows.
Key Takeaways for Investors
- Positioning-driven rallies are fragile. The short squeeze has run its course; without improving fundamentals, further gains may be limited. Watch the S&P 500’s 100-day moving average as resistance.
- Bonds are the real signal. The rise in real yields, not inflation expectations, suggests the market is pricing tighter policy. Equity valuations could come under pressure if yields continue to climb.
- AI trade is intact but rotating. Nvidia’s leadership transition is a test, but capital is finding new homes. Nvidia’s earnings on Nov 17 and Anthropic’s IPO pricing will be key catalysts.
- Geopolitical risk is back. Oil’s rebound and Iran tensions could add to inflation pressures.
- Watch the Fed. A 50bp December hike is now 10% priced, with another 25bp in January at 70%. The December dot plot will be decisive.
As one Goldman trader put it: “The AI trade survived Jensen’s departure, but Waller is a different kind of trouble—because he won’t resign.”
