U.S. stocks such as Facebook parent company Meta Platforms, third-party digital payment platform PayPal and social media company Snap Inc. reported sharp shocks after their earnings reports last week. In addition to the unexpected earnings reports, the bid-ask spread has widened significantly. Reflects the recent dry up liquidity problem.

The Financial Times reported on the 4th that in the past two weeks, liquidity has deteriorated seriously, and the cost of executing large transactions has become higher and higher, and some managers have even suspended large transactions. “Intraday liquidity has decreased quite a bit, and that hasn’t happened since March 2020,” said Patrick Murphy, partner at market maker GTS.

Goldman Sachs strategist Rocky Fishman mentioned that the bid-ask spread on the E-mini S&P 500 index futures has frequently widened to 50 cents in the past two weeks, more than double the normal 25 cents, as liquidity has dried up. “Reduced liquidity increases the chance of extraordinary market volatility,” he said.

According to the report, a professional trader on Wall Street described the market as having an air pocket, and during the most volatile period, the block trading market was basically closed. “Because of the surge in volatility, bid-ask spreads have widened significantly and are very difficult to match,” he said.

Amid the jump in volatility and suboptimal market function, many have turned to ETFs that can be bought and sold in batches quickly without causing dramatic stock price swings. Statistics from BlackRock’s iShares show that on January 24, the trading volume of U.S.-listed ETFs hit $475 billion, a single-day record high, surpassing the previous record set in February 2020.

After several major U.S. companies reported earnings last week, stock prices fluctuated violently. Snap’s stock price soared 58.82% on February 4 after announcing its first-ever single-quarter profit report, and its stock price plummeted 23.6% on the eve of the earnings report on the 3rd. The financial report released by Meta 3 on the 3rd was a big disappointment. The stock price collapsed 26.39% that day, the largest daily decline since its listing in May 2012. The market value evaporated 251 billion US dollars in one day, setting the highest record in the history of US stocks. After PayPal also announced its earnings report, its stock price collapsed 24.59% on the 2nd.

U.S. stocks super drama V turn
U.S. stocks had a dramatic V-turn in intraday trading on January 24. The Dow Jones Industrial Average fell by more than 1,000 points and then turned red and closed higher.

Zero Hedge reported that SpotGamma issued an after-hours review report and pointed out that a large number of option transactions emerged in US stocks at noon on the 24th (just after European stocks closed), which was a catalyst for US stocks to turn V.

The chart shows (see here) that a famous mystery guest suddenly sold put options at noon (brokers also suddenly changed from selling S&P 500 futures to buying), which made the selling speed of the brokers slow down, and then re-sold to buy, a lot of pressure. An empty tide followed, prompting the stock market V to close higher.