Stocks are r ebounding Friday and trying to find a floor after a terrible week, helped by the usual technology leaders, but Wall Street pros are bracing for even more pain ahead just in case the recovery fails to hold. The sudden carnage has been profound, leaving pain and scars. "Concerns around AI and a weak batch of U.S. data led to growing questions about the near-term outlook," wrote Henry Allen, macro strategist at Deutsche Bank in London. Software stocks led the latest downdraft, with the S & P 500 software index sliding 5% Thursday and retreating for a seventh straight day, helping push the entire S & P 500 lower for a third day. Traders are alert to other signs of stress and a mounting risk-off mood in key areas. "Yesterday was one of the worst days for momentum[trades] in the U.S. in years," the JPMorgan trading desk wrote Friday morning. Hedge funds liquidated all manner of long positions, the traders noted. Bitcoin plunged more than 13% Thursday, its largest decline since November 2022, the same month ChatGPT debuted, and down almost 50% from its October high. At one point overnight, the leading cryptocurrency touched $60,033 before recovering. The Cboe Volatility Index , a real-time measure of trader expectations of how widely the S & P 500 might trade in the next 30 days, jumped 3.13 on Thursday to a new 2026 high of 21.77, Deutsche Bank noted. The two-year Treasury note yield — usually thought to most closely track future changes in Federal Reserve interest rate policy — tumbled more than 10 basis points Thursday, the largest decline in six months, the bank said. And despite the Friday morning bounce-back, "there's no sign of the sell-off finding a floor just yet," after disappointing results from Amazon postmarket drove stock index futures lower overnight in Asia and Europe before they steadied as U.S. traders came online. Professionals are far from complacent that early action Friday necessarily means the market has turned the corner. "It's possible that the market shakes this off quickly, as it has other bouts of volatility in the past six months," the JPMorgan traders told clients Friday. What's worrying, however, is that "Given the level of stretched positioning and performance within the sector (i.e. Semis long vs. Software short positioning, Semis vs. Software returns at extremes, TMT Momentum at an extreme) the potential for there to be further volatility and de-grossing seems high," they wrote. Moreover, recent action in the metals markets — gold, silver and copper — may also herald more violent price moves, JPMorgan said. "The recent volatility in metals could be a similar parallel to what we might see i.e., it wouldn't be surprising to get some rebound in the next few days for U.S. Momentum and [hedge fund] alpha as it's not clear the narratives driving recent moves have fundamentally changed in the past few days, but we could be in for more volatility going forward as we're seeing in metals," the Wall Street traders wrote.
