Between 4:40 a.m. and 6:20 a.m. Eastern Time on Wednesday, S&P 500 futures dropped sharply, wiping $600 billion in market value without any major economic headlines to explain the move.
According to market analysis published by The Kobeissi Letter on X, the rapid plunge followed by a swift recovery has left traders and analysts questioning the underlying stability of risk assets.
The Kobeissi Letter described the event as a “flash crash” and highlighted that similar unexplained selloffs have emerged across other volatile markets, including cryptocurrencies.
The note referred to a February 25 crypto flash crash, which erased $300 billion from digital asset markets in 24 hours without a clear catalyst. Earlier that month, Ethereum declined 37% in just 60 hours despite pre-existing pricing of trade war headlines.
One of the few overnight developments came from Europe. The Swiss National Bank announced a rate cut to its lowest level since September 2022. However, The Kobeissi Letter dismissed this as an explanation, noting that the cut was widely anticipated and did not align with the severity or speed of the U.S. market reaction.
Investor sentiment has taken a decisive turn. The American Association of Individual Investors (AAII) sentiment data shows 58.1% of investors are currently bearish. This marks four consecutive weeks above the 55% threshold, a significant shift from levels under 30% just months ago.
At the institutional level, hedge funds have exited U.S. equities at a historic pace. The Kobeissi Letter stated that funds dumped technology shares faster than at any point since January 2021. This reversal followed a wave of purchases that had mirrored activity during the 2022 bear market. Now, hedge fund capital is flowing into gold and silver, both of which have seen extended rallies.
Retail investors are moving in the opposite direction. Data cited in the analysis shows retail inflows into Nasdaq 100 stocks have reached 0.1% of market cap, the highest in a year. JPMorgan’s sentiment index for retail investors climbed to four, surpassing levels seen during the 2021 meme stock frenzy.
The crypto market reflects the same split. Ethereum short positions surged 40% in February and 500% since November. Yet, individual investors continue to accumulate positions, creating what The Kobeissi Letter described as “air pockets,” with price volatility and sharp reversals becoming more common.
Markets rebounded later in the day. Strong housing sales data from the National Association of Realtors and steady jobless claims helped ease recession concerns. The S&P 500 rose 0.5% by press time, the Nasdaq climbed 0.7%, and the Dow added 217 points. Tech stocks led the recovery, with Meta gaining 4% and Amazon up 1%.
Still, volatility persists. The S&P 500 remains 7% off its all-time high, while the Nasdaq is down 11% for the month, entering official correction territory.
