Dizzying week turning tables on stock market’s new buyers’ alliance

Bloomberg

Behind the big recovery in stocks has been a loose consortium of new and old buyers, each responding to a distinct storyline. Traders banking on the Federal Reserve, market novices bent on picking the bottom, and people convinced megacap tech is invincible.
Whether they will be enough to sustain a lasting rally is the next urgent question for bulls, especially now, after a two-session sell-off erased a week’s progress. The fall in the S&P 500 Index on May 2 served notice that volatility remains an ever-present risk in a market that is flying blind on the economy.
April was the best month for the S&P 500 in 33 years, and each group — Fed front-runners, retail newbies, Fang worshipers — had a role in the rally, their influence felt in equal measure. Credit-challenged small caps, tech megacaps and the growth stars beloved by individuals surged by the same amount: 15%. Then, last week, each fell more than the S&P 500.
On the week, the S&P 500 slipped 0.2% and the Nasdaq 100 fell 0.8%. With forward valuations above their levels from February, it’s getting harder to feed a rally that has restored half of the crash’s decline, according to Michael O’Rourke, JonesTrading’s chief market strategist.
“They’ve had a nice rally and that’s good, but that’s not enough,” O’Rourke said. “We hit very expensive levels, and we have all those headwinds to deal with ahead of us,” he said. “It won’t be a linear process.”
Measures of anxiety just surged. The Cboe Volatility Index, at one point down 50 points from its record of 82 in March, posted its biggest two-day gain in five weeks. While only a blip on a chart of the recovery, the pounding in the S&P 500 raised fresh questions about whether the current batch of bulls, who until now found solace in the dreariest of environments, will keep buying during what may be the worst recession in nine decades.
Throughout the coronavirus bust and boom, one thing has been constant: investors considered tech as a haven. The Fang titans especially, revered for their strong balance sheets and high growth, acted as a ballast, with some even posting double-digit gains this year.
For a while, at least, it seemed it was enough to keep the market aloft.
“These companies have earnings, they’ve been resilient,” Katie Koch, co-head of fundamental equity at Goldman Sachs Asset Management, said by phone.
Exchange-traded funds tracking tech stocks saw their best two months of inflows in March and April since at least 2013, with about $12.5 billion added in total, according to data compiled by Bloomberg. And Invesco’s tech ETF, ticker QQQ, had its best month in about two decades in March, attracting almost $5.4 billion.
Companies in the S&P 500 with the diciest credit rose 5% over the last week, compared with 0.4% for those with the best, according to data compiled by Bloomberg.
While professionals continue to debate the staying power of the rally, small investors have been lured in — in a big way. Many online brokerages — which now offer zero-fee trading — saw record account openings during the first quarter. E*Trade Financial Corp. saw more accounts opened and dollars invested in the first quarter than in any prior full-year period.