It’s not just tech selling that’s hurting the stock market right now. Investors seem to be getting rid of a host of highly volatile stocks in a hurry. JPMorgan strategist Dubravko Lakos-Bujas pointed out Thursday that investors since Labor Day piled into high beta stocks — those that are more volatile than the broader market — at a record pace. Positioning in the group rose to near the 100th percentile from the 17th percentile in just 75 days. “The latest episode of crowding was partially a result of investors missing the initial V-shaped recovery in April and then chasing upside through Spec-Growth in the U.S. and Cyclical Beta abroad,” wrote Lakos-Bujas. “This style positioning is at risk of reversal given the extreme divergence (e.g. High Beta has outperformed Low [volatility] by +32% since March, while the Valuation spread has widened by +7x P/E) … Goldilocks priced-to-perfection (i.e. either a growth scare or a less dovish Fed is a risk), rising market fragility (e.g. investors herding into similar factor and thematic exposures with leverage), and tightening liquidity.” The reversal looks to have already started. All 15 of the S & P 500 stocks with the highest beta are lower week to date. These include ” Magnificent Seven ” members Tesla and Nvidia , as well as crypto exchange Coinbase and online brokerage Robinhood Markets . Favoring less volatile stocks JPMorgan advised clients to move into lower beta names such as Walmart , Waste Management and Berkshire Hathaway . “It is an opportune time to revisit portfolio construction, especially for Long/Short books with high leverage, given the extreme factor divergence and crowding at a time of elevated gross leverage across strategies,” wrote Lakos-Bujas. Walmart has been spared the week’s decline and is little changed since last Friday’s close. Waste Management and Berkshire Hathaway Class A shares are higher by 1.3% and 2.9%, respectively.
Crowded high beta trade is unwinding. JPMorgan says find some calm stocks
