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The stock market’s riskiest edges are rallying

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Stock market’s riskiest edges are rallying

In an unusual risk-on session last week, the speculative fringes of the US stock market took flight.

Microsoft Corp, the country’s second-largest corporation, has lowered its earnings forecast. Unprecedented economic shocks, according to a top Goldman Sachs executive. A new dose of hawkish rhetoric came from a Federal Reserve official.

The riskiest US stocks, though, continued to rise.

The blue-chip Dow Jones Industrial Average was surpassed by 6,6 percentage points by technology companies that have yet to produce any money. The Renaissance IPO ETF increased by 6.6%, while the ARK Innovation exchange-traded fund increased by 7.3%.

The number of options in Tesla Inc. and GameStop Corp. also increased.

Risk appetite returned after Chinese officials vowed 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 equities rally, it was the market’s beaten down riskier districts that staged the biggest rebound.

“Today’s news on the macro front provides more catalysts for risk sentiment to improve after a brutal eight weeks of selling,” said Gareth Ryan, managing director at IUR Capital. “Risk assets can only remain oversold for so long before they begin to look attractive for the opportunist.”

Thursday’s advance came as private hiring data posted the smallest gain since the pandemic recovery began and Fed Vice Chair Lael Brainard threw cold water on a September pause in rate hikes.

In addition, Goldman President John Waldron decided to echo Jamie Dimon’s pessimistic tone from Wednesday and warn of tougher times ahead amid a string of shocks rattling the global economy.

Whether speculative fringes of the market are at an inflection point or simply hitting an air pocket remains to be seen. But traders are aware that prior similar rebounds this year have turned out to be head-fakes.

Since a Goldman Sachs gauge of non-profitable tech stocks peaked in early November, it has posted four other days of roughly 8 gains. That hasn’t stopped the gauge from falling for seven months in a row, the longest stretch of declines since its 2014 inception. – Bloomberg

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