Wall Street Goes All-In on Risky Stocks

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(Bloomberg) — Investors are piling into speculative and volatile edges of the stock market, throwing caution to the wind as the S&P 500 Index closes in on an all-time high.

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The risks remain: President Donald Trump’s tariff pause is scheduled to end in two weeks, signs of a slowing economy and weakening consumer sentiment are mounting, and war is rumbling in the background. Wall Street strategists are encouraging everyone to buy stocks with strong balance sheets that can withstand any sudden shock. But investors appear to be ignoring all of it.

The Invesco S&P 500 High Beta ETF, an exchange-traded fund that tracks highly volatile stocks, is on track for its best quarter since 2020 relative to the Invesco S&P 500 Low Volatility ETF. Meanwhile, a Goldman Sachs gauge of stocks with weak balance sheets is eyeing the best month relative to the S&P 500 since January.

“This is the very beginning of a period of FOMO that happens in the late stages of every structural bull market — every single one,” said Julian Emanuel, chief equity and quantitative strategist at Evercore ISI. “What we are surprised by is the speed at which speculation has been embraced given the record bearishness just a little over two months ago and also in light of what continues to be significant economic and policy uncertainty.”

The key is individual investors, who favor momentum plays like big tech stocks and speculative names. They kept buying even in early April when the S&P 500 teetered on the brink of a bear market and institutional money managers sold out during the depths of the tariff-fueled market meltdown.

Buying Dips Works

“Let’s go back to the various dips that we’ve seen in the market, starting with Covid,” said Paul Nolte, market strategist and senior wealth adviser at Murphy & Sylvest Wealth Management. “Every time that the market declined in a very short fashion, investors have learned: Buy the dip and buy the higher-beta type stocks.”

Large-cap technology behemoths have been the main drivers of the markets in the past two years. They had a brief hiatus earlier this year when the rise of Chinese artificial intelligence startup DeepSeek raised concerns about who will dominate AI, but tech giants are back in the driver’s seat, leading the sharp recovery in the S&P 500 since the tariff selloff.

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“Once the tariffs kind of de-escalated, investors came back to the dominant theme, which is AI,” said Keith Lerner, co-chief investment officer at Truist Advisory Services.

This strong focus on big tech is even holding back one risky corner of the market — small-cap stocks. The small-capitalization Russell 2000 Index and the S&P 600 Index, which unlike the Russell only includes profitable smaller companies, are both lagging the S&P 500 this year and quarter.

Strategists point out that technology has a relatively lighter weight in these small-cap gauges. Information technology and communication services together have a nearly 43% weight in the S&P 500, but just 13% in the Russell 2000 and and about 16% in the S&P 600.

The strength of tech firms is also driving profit growth at the index level. The S&P 500’s earnings this year are estimated to grow about 8% from last year, with information technology the strongest anticipated gainer at nearly 21%. Expectations for other sectors pale in comparison.

“In a time of uncertainty around earnings, investors are gravitating towards areas that have more of a secular theme,” Truist’s Lerner said.

(Updates Goldman Sachs gauge performance in third paragraph.)