The recovery in US stocks is all thanks to the riskiest kinds of companies

The massive recovery in US stocks since reciprocal tariffs were announced is as clear a sign as any that risk appetite is back.

But just how much have traders been willing to dump or embrace risk during the S&P 500’s descent from all-time highs and swift bounce back?

Factor portfolios are a useful way to track the tale of the tape in this regard, and Bloomberg has a hefty collection of US-specific long/short factor portfolios that group stocks based on certain attributes: value, momentum, profitability, earnings variability, size, and so on.

All of these portfolios are designed to be market neutral, meaning their price action shouldn’t be driven by what the overall stock market is doing, but rather the unique characteristics of each factor.

The initial leg downward in stocks from when the S&P 500 reached an all-time high on February 19 was, unquestionably, a momentum-centric downturn. Momentum cratered, and traders sought safety in companies that were cheap, profitable, or had good dividend yields. After March 10, momentum came roaring back and high-dividend stocks slumped (as longer-term US bond yields drifted higher, which tends to reduce the relative appeal of companies that pay back their shareholders in this manner).

But focusing on which factors have led since the S&P 500’s 2025 low on April 8 is a veritable who’s who of the riskiest types of stocks; high volatility, high trading activity, and earnings variability are the top three. That comports with what we know about retail traders flexing their muscles through this maelstrom, no doubt.

Some of the stocks that are longs in all three portfolios include Tesla, Strategy, Dell, and AppLovin.

Which raises the question: is it inherently risky when stocks like this are leading the market?

Well, during the current bull market (which we’ll still say we’re in until proven otherwise!), we have scant instances of these three factors all being atop the leaderboard for most of a two-week period. Once was in late 2023, which coincided with/was followed by a brief hiccup for the overall market before the S&P 500 roared in the first quarter of the next year. The other came earlier, in February 2023, and was followed by one of your run-of-the-mill 5% to 10% pullbacks for the broad market.

Certainly nothing conclusive, but it does get the antennae up just a little.