A battle line is opening in the stock market. On one side are professional money managers focused on suddenly stodgy-seeming metrics such as earnings growth. On the other, newbie day traders obsessed mainly with momentum. At least going by who got crushed the least this brutal week, score one for the old guard.
“A lot of hedge funds are playing a longer game and have generally been suspicious of that very strong and quick rally in the market on the belief that something broke in the economy and it’s just not going to be this easy to recover,” said David Donabedian, chief investment officer of CIBC Private Wealth Management. For smaller traders, on the other hand, it’s been “a mania, to go for the stuff that looks the diciest and bet on a high-beta rally.
Their sector tilt also pointed to defensiveness. Holdings in airlines, hotels and restaurants hovered around multiyear lows, while the exposure to the safety of the stay-at-home trade — technology and healthcare — was near a decade high, Morgan Stanley data showed.Mom-and-pop investors, on the other hand, rushed in during the March turmoil. At E-Trade Financial Corp., client activity continued to expand from record levels reached last month.
To Robert Pavlik, the chief investment strategist at SlateStone Wealth, that’s a dangerous sign of chasing momentum regardless of fundamentals.“Retail investors are playing these crazy names and they don’t know what to fear,” Pavlik said. “Why on Earth do you want to buy Hertz? They’ve already filed for bankruptcy. That means equity investors are not going to be left with anything. It’s a nonsense trade.
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