The hottest stocks are fizzling in a tired market
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Some of the year's best-performing assets are suddenly reversing course: Quantum and nuclear stocks have sold off, alongside precious metals.
Why it matters: The selling could be a hint of exhaustion over the euphoric corners of the market.
By the numbers: Several Wall Street darlings have recently lost favor.
- Oklo, a nuclear stock with no revenue, rallied nearly 700% through the middle of October. Since then, it has fallen nearly 30%.
- Quantum stocks rallied, with D-Wave Quantum surging 365% over the same period. It then tumbled 30% before bouncing back a bit after the Wall Street Journal reported the Trump administration was weighing taking a stake in quantum computing companies.
- Fermi, a data center REIT, went public at the start of the month, with shares opening 19% above offer. The stock hit a record low Tuesday.
- The historic 60% year-to-date rally in gold was tested by a week of selling that included the worst single day for the precious metal since 2013.
What they're saying: "When you're at these types of valuations that we're at, if we see anything less than excellent, people get nervous," Jim Caron, chief investment officer at Morgan Stanley Investment Management, tells Axios.
- Nothing fundamentally changed for gold, Oklo or quantum stocks before the selling off started. Profit-taking and technicals are driving the selling.
Between the lines: Investors are easily triggered right now, which can be seen by the reaction to quarterly earnings reports this season.
- JPMorgan Chase beat on earnings, but CEO Jamie Dimon mentioned credit risks, and the stock decline. IBM also beat on earnings, but its software revenue came in line with estimates, and the stock fell.
- When valuations are stretched, it doesn't take much to fuel a selloff.
Reality check: "You cut your grass," Stephanie Guild, chief investment officer at Robinhood, tells Axios, referring to investors trimming profits on parts of their portfolios that have climbed sky-high, a move she called "prudent."
- Outperforming assets come with a side of volatility, Guild says, and it's important not to read "too much" into these moves. In other words, if you own an asset up triple digits year-to-date, get used to seeing down days.
- As the manager of Robinhood Strategies, the platform's version of a robo advisor, Guild manages investments and says she is closely monitoring some risky positions that may see pressure off the back of profit-taking.
The bottom line: Assets, much like trees, don't grow to the sky, especially when investors are this worried about a bubble.
