Stocks Rally as Investors Chase Gains, But Risks Remain
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Stocks have rallied recently with the S&P 500 up 9% in 13 days. Even risky assets like meme stocks, IPOs, solar, and cannabis are up double digits.
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Hedge funds have performed terribly this year, down 7% while the S&P 500 is up 17%. They will likely aggressively chase trends and employ leverage into year-end.
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Beaten down stocks like ARKK (still down 70% in 2022) have room to rally as funds buy laggards. But these are still risky bets.
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Seasonal tailwinds and momentum could continue the rally, especially if bonds cooperate.
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Investors should be cautious and employ prudent risk management. Take advantage of momentum but keep expectations aligned with reality.