The buzziest stocks are running into the buzzsaw as stock-market angst festers
Speculative stocks are fully succumbing to the selling afflicting their larger peers.
The stock market has gone through three phases since the US election.
The first, from November 5 through December 6, saw stocks surge on widespread enthusiasm about the purportedly pro-business, pro-market stances the incoming Trump administration would adopt. Even then, there was more than a whiff of speculative fervor in the air: the best-performing US equity factors during this period were trading activity and volatility, or stocks that move a lot with lots of turnover.
Some companies that fall into one (or both) buckets include Palantir Technologies, Tesla, AppLovin, Rocket Lab, Trump Media & Technology Group, Riot Platforms, Rivian, Palo Alto Networks, Reddit, GameStop, MARA Holdings, and Coinbase.
Then, after December 6, the S&P 500 struggled, failing to make an all-time high, but many thematically interesting, tech-oriented segments of the market still roared.
Smaller AI upstarts like SoundHound AI and Cerence jumped more than 130% and 240%, respectively, over the next month. Four quantum-computing stocks — D-Wave Quantum, Rigetti Computing, IonQ, and Quantum Computing — saw their combined market caps rise by more than 80% during this stretch. The cherry on top of the speculative sundae saw SEALSQ, a Swiss company that’s been touting its quantum-resistant tech, spike 1,840% in a turbocharged parallel boom with quantum stocks.
Meanwhile, the benchmark US stock index gave back about 2%.
Now, even the buzziest names are running into the buzzsaw. Blame a combination of high long-term bond yields and some recalibration of very rose-colored expectations for the incoming Trump admin as the inauguration draws closer, along with some idiosyncratic catalysts — like Nvidia CEO Jensen Huang throwing cold water on quantum computing — for the air coming out of these balloons.
On January 7, stocks that did well during December started to get slammed, followed by a day of reckoning as the drawdowns accelerated.
This continued leg downward on Monday, with huge drops in once-upon-a-time meme stocks like Plug Power as well as the quantum-computing cohort, hints at the possibility of capitulation by retail investors. Last week, JPMorgan equity and quantitative strategists flagged that retail investors had been continuing to plow cash into the market, buying the dip in names like Palantir.
That dip-buying activity appears to have been getting dwarfed by institutional divestments at the index level for more than a month now. Now, the retreats in Big Tech megacaps have cascaded down to the parts of the stocks that had previously appeared immune to selling pressure.
Volatility and trading activity, the best-performing US stock-market factors from November 5 through January 6?
Well, since last Monday, those two are at the bottom of the leaderboard.
