The stock market’s speculative fringes took off on Thursday in a bizarre risk-on session.
Microsoft Corp., the second largest company in the United States, reduced its profit margin. A top executive at Goldman Sachs warned that unprecedented economic shocks are on the way. And a Federal Reserve official offered a fresh dose of hawkish comments. But the most risky U.S. stocks still rose.
Technology companies that have not yet made money surpassed the Dow Jones Industrial Average by 6.6 percentage points. The Renaissance IPO ETF rose 6.6%, while the ARK Innovation Exchange Traded Fund added 7.3%. And the amount of options in Tesla Inc. and GameStop Corp rose.
Risk appetite returned after Chinese officials promised to support economic growth, and OPEC + agreed to open its oil taps faster in the summer months, which could lower oil prices and ease inflationary pressures. While the news helped trigger a broad stock market rise, it was the market’s downturned more risky districts that staged the biggest recovery.
“Today’s news on the macro front provides several catalysts for risk sentiment to improve after brutal eight-week sales,” said Gareth Ryan, CEO of IUR Capital. “Risk assets can only remain oversold until they begin to look attractive to the opportunist.”
Thursday’s advance came as private employment data showed the smallest increase since the pandemic’s recovery began, and Fed Vice President Lael Brainard threw cold water on a break in September ‘rate hikes. In addition, Goldman President John Waldron decided to repeat Jamie Dimon’s pessimistic tone from Wednesday, warning of tougher times ahead amid a series of shocks rattling the global economy.
Whether speculative fringes of the market are at a turning point or just hitting an air pocket is still unknown. But traders are aware that earlier similar rebounds this year have proven to be major counterfeits. Since a Goldman Sachs measurement of unprofitable technology stocks peaked in early November, it has posted four other days with an increase of about 8%. It has not prevented the meter from falling for seven months in a row, the longest stretch of fall since the start in 2014.
© 2022 Bloomberg
