It’s not just tech selling that’s hurting the stock market right now. Investors seem to be getting rid of a host of highly volatile stocks in a hurry.
JPMorgan strategist Dubravko Lakos-Bujas pointed out Thursday that investors since Labor Day piled into high beta stocks — those that are more volatile than the broader market — at a record pace. Positioning in the group rose to near the 100th percentile from the 17th percentile in just 75 days.
“The latest episode of crowding was partially a result of investors missing the initial V-shaped recovery in April and then chasing upside through Spec-Growth in the U.S. and Cyclical Beta abroad,” wrote Lakos-Bujas. “This style positioning is at risk of reversal given the extreme divergence (e.g. High Beta hasoutperformed Low [volatility] by +32% since March, while the Valuation spread has widened by +7x P/E) … Goldilocks priced-to-perfection (i.e. either a growth scare or a less dovish Fed is a risk), rising market fragility (e.g. investors herding into similar factor and thematic exposures with leverage), and tightening liquidity.”
The reversal looks to have already started.
All 15 of the S&P 500 stocks with the highest beta are lower week to date. These include “Magnificent Seven” members Tesla and Nvidia, as well as crypto exchange Coinbase and online brokerage Robinhood Markets.
High beta stocks get crushed.
Source: www.cnbc.com
Aleksei Andrievskii is the founder of the ANDRIEVSKII SEA WEALTH family office in Cyprus, a member of the advisory board at Bendura Bank AG, Liechtenstein