Investors flocked to the riskiest corners of the US stock market on Monday, giving last year’s laggards a significant boost. The sudden appetite for high-risk investments has left many market analysts scratching their heads, trying to make sense of this unexpected trend.
Unprofitable Tech Stocks Lead the Charge
The shares of unprofitable technology companies, distressed corporations, and firms with a high short interest were among the big gainers on Monday. This surge in popularity has seen these stocks outperforming the S&P 500 Index, which enjoyed a stellar rally last year.
Goldman Sachs Indexes Reveal the Trends
The Goldman Sachs Group Inc.’s index of non-profitable technology stocks closed up 3.3%, while a Goldman gauge for most-shorted stocks rose as much as 1.8% but closed little changed. Last year, both Goldman indexes lagged the benchmark, and it remains to be seen if this trend will continue.
Michael O’Rourke on the Risk-On Trade
According to Michael O’Rourke, chief market strategist at Jonestrading, "After resting post-Christmas, the election euphoria has reasserted itself. This is aggressive risk-on trading." He added that he sees this as a short-term beginning of the year phenomenon that likely runs out of momentum by the end of the week.
Small-Cap Stocks Fall Behind
However, not all stocks benefited from the risk-on trade. Small-cap stocks continued to lag behind, with the Russell 2000 Index falling 0.1% while the S&P 500 rose 0.6%. This discrepancy highlights the varying degrees of risk tolerance among investors.
Uncertainties Loom Large
Despite the surge in high-risk investments, uncertainties remain looming large. The possibility that US President-elect Donald Trump will unleash a new wave of tariffs and spark off a trade war with key allies is casting a shadow over the market. Additionally, the Federal Reserve’s interest-rate path remains unclear as inflation has stayed stickier than expected.
Qualcomm Introduces New Chips
However, positive news from technology companies helped push their stocks higher. Qualcomm Inc., for instance, introduced new chips designed to power personal computers capable of running the latest artificial intelligence software yet cost as little as $600.
Nvidia’s Server Assembly Partner Sees Revenue Growth
Another boost came from Nvidia Corp.’s server assembly partner Hon Hai Precision Industry Co. — also known as Foxconn — which reported faster-than-expected revenue growth on continuing demand for artificial intelligence infrastructure.
Investors Expect a Speech from Jensen Huang
Market participants are eagerly awaiting a speech from Nvidia Chief Executive Officer Jensen Huang, expecting it to move the chipmaker’s shares.
Dave Lutz on Short Squeezes
According to Dave Lutz, equity sales trader and macro strategist at Jonestrading, "It feels like the Foxconn news, coupled with anticipated announcements from the Consumer Electronic Show, are sparking a bid across the board in technology, causing a lot of short squeezes." This phenomenon refers to traders who bet against a stock being forced to buy shares back to cover losing positions.
The Risk-On Trade Continues
As investors continue to seek out high-risk investments, it remains to be seen how long this trend will last. One thing is certain, however – the market is full of surprises.
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