Nvidia's "stellar" financial report unexpectedly becomes a "bull trap" in the US stock market. Goldman Sachs warns: the market is already scarred.

Goldman Sachs Group, Inc. partner John Feld said that the sharp reversal in US stocks on Thursday indicates that NVIDIA Corporation's (NVDA.US) strong performance did not provide traders with the expected "comprehensive risk-off" signal, but instead prompted them to seek hedge against further losses. The significant surge in the US stock market at the opening quickly dissipated. The S&P 500 index rose by 1.9% in the first hour, then turned downwards, falling by 1.1% by 1pm - the largest intraday fluctuation since market turmoil in April, with market value evaporating over $2 trillion from the day's high and closing below the 100-day moving average for the first time in months. The panic index VIX jumped above 26. Despite the outstanding performance of NVIDIA Corporation, the stock market plummeted, leaving traders eager to find an explanation. Various theories emerged, from questioning the Fed's ability to cut interest rates after a mixed employment report, to concerns about overvaluation and technical dynamics, which could lead to further sell-offs by hedge funds. "The market is heavily scarred at the moment," Feld wrote in a report to clients, "the market is extremely focused on hedging crowded risks, and investors are in a pure profit and loss protection mode." Goldman Sachs Group, Inc.'s trading department found that short positions in macro products, including exchange-traded funds, custom basket products, and futures, have increased. The department also noted poor market liquidity, with the bid depth of the S&P 500 market falling below $5 million, compared to an average of $11.5 million over the past year, which may amplify market volatility. Feld pointed out that there have been eight instances since 1957, including Thursday, where the S&P 500 index opened with a gain of over 1% but later reversed to close lower. Fortunately, the average performance after these events has been positive, with gains of at least 2.3% the following day and week, and an average increase of 4.7% over the next month. "These reversal events will prompt investors to reevaluate their risk exposures," Feld said.