Retail Traders Pushing Rebound
As the stock market continues to climb to new heights. Some analysts are becoming increasingly concerned that retail traders are pushing the rally too high. Marko Kolanovic, chief market strategist and at JP Morgan Chase, has warned that over 20% of all market volume is coming from retail orders, nearing a record high. This surge of activity from retail investors is causing concern among money managers. Who are taking their cues from the Federal Reserve’s continued focus on inflation.
The biggest cause for concern and eerie indicator. The risk-free rate in the bond market has climbed to a level not seen since 2007, and should be drawing more funds into fixed-income. Instead, retail investors are chasing high-risk assets, such as meme stocks, based on internet stock pushers. This exuberance and greed is concerning to professional managers that believe that retail investors are taunting the Federal Reserve by investing in unprofitable companies and high-risk derivatives.
The popularity of these high-risk investments, along with the herd mentality of retail traders, has led to concerns that a broader correction could take effect. This means that a sudden downturn could lead to everyone rushing for the exit at once, causing a vicious cycle of selling.
What Stocks are the Most at Risk
It is difficult to predict with certainty which stocks are most at risk of crashing after a recent run, as many factors can affect stock prices. However, there are certain indicators that can signal a stock is overvalued or at risk of a correction.
One factor to consider is a company’s valuation metrics, such as price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio, and price-to-book (P/B) ratio. A high valuation relative to the company’s earnings, sales, or book value could indicate that the stock is overvalued and at risk of a correction.
Another factor to consider is the company’s financial health and fundamentals. A company with weak financials, such as high debt or low profitability, could be at higher risk of a crash. Similarly, a company with a history of missing earnings or revenue estimates could be at risk of a correction if investors lose confidence in the company’s ability to grow.
Finally, market trends and sentiment can also affect a stock’s performance. For example, if the overall market experiences a correction, many stocks could be affected, regardless of their individual fundamentals.
With those factors in mind, some stocks that could be at risk of a market crash after a recent run include those with high valuations and questionable financials or growth prospects. Such as certain meme stocks, high-flying tech stocks, and companies in industries that are currently experiencing a bubble, such as electric vehicle or cryptocurrency companies.