For retail investors chasing hot stocks, overnight U.S. markets delivered their worst trading session since April.
On Tuesday, a combination of Palantir Technologies Inc.'s earnings report, bearish bets from prominent short sellers, and turbulence in the cryptocurrency market triggered a sharp sell-off in retail-favorite stocks and assets. All three major U.S. stock indices declined, with the Nasdaq plunging over 2%.
According to a Goldman Sachs index tracking retail-heavy stocks, the gauge tumbled 3.6%—about three times the drop in the S&P 500—marking its steepest single-day decline since April 10.
Retail trading enthusiasm didn’t immediately fade at Tuesday’s market open. Data compiled by JPMorgan Chase & Co. showed that as of 11 a.m. New York time, individual investors were still net buyers of $560 million in stocks and ETFs.
This may have contributed to an early rebound that briefly narrowed the S&P 500’s losses, but the rally proved short-lived as markets reversed course again. Melissa Armo, CEO of trading education platform Stock Swoosh, described the day’s action:
"This is what happens when panic sets in and people start selling."
**Earnings Miss and "Big Short" Bets**
Two key events directly fueled the sell-off in retail favorites. First, Palantir’s earnings report raised concerns about its growth prospects.
While Palantir posted strong Q3 results, doubts lingered over the sustainability of its lofty valuation. The stock—a retail darling that had surged over 150% this year—plunged nearly 8% and extended losses after hours.
Second, a regulatory filing by legendary investor Michael Burry became the final straw.
A 13F filing revealed that Burry, the hedge fund manager famous from *The Big Short*, established bearish positions against Palantir and chip giant Nvidia last quarter.
Just days earlier, Burry had warned retail investors about excessive market euphoria. The disclosed short positions confirmed his bearish stance and quickly amplified market fears.
**Crypto Crash Intensifies Sell-Off**
Beyond the direct stock market shocks, turmoil in cryptocurrencies added pressure on retail investors and dragged down crypto-linked equities.
Bitcoin accelerated its decline, dropping below the $100,000 mark for the first time since June and briefly touching $99,932, breaching its 200-day moving average and logging its second-worst daily loss this year. Ethereum, the second-largest crypto by market cap, also plummeted over 10% to around $3,225.
Per Coinglass, 342,000 traders faced liquidations in the past 24 hours, with over $1.3 billion in positions wiped out—85% of which were long bets.
This crypto slump follows closely on the heels of a historic liquidity crisis three weeks ago, which forced billions in leveraged positions to unwind.
Looking ahead, market sentiment remains fragile. Armo is bracing for another potential drop on Wednesday, advising:
"If traders can stomach some pain, they might start preparing a watchlist of potential buys. If not, I’d suggest selling."
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