• December 10, 2023

Markets Are In A Risk-off Mode: That Spells Opportunity

F.or for most of the past twelve months, investors have been exuberant and ready to give in to their risk appetite. This was evident in the rapid rises in technology stocks, the emergence of cryptocurrencies like Bitcoin and Ether, the billions in valuations of pre-revenue companies debuting in public markets via SPACs, the rising performance of IPOs and of course the speculation about Gamestop (GME) and Dogecoin (dog).

There was a risk appetite everywhere in the market. Now investors are singing a different tune.

Take the tech stocks that rose during the lockdown and before the vaccine was launched. After Zoom Video Communications (ZM) is down nearly 50% and stands at $ 320. Other pandemic favorites like Etsy (ETSY) and Shopify (BUSINESS) are around 30% and 18% below their all-time highs. Tesla (TSLA), the ultimate beneficiary of the pandemic, is down about 35% from its record high.

The cryptocurrency sector is also full of bruises, as shown by this week’s dramatic slump. Bitcoin (BTC) fell by over 30% in just 24 hours; At around $ 40,000, the largest cryptocurrency is around 36% below its all-time high. Ether (ETH), the second largest crypto asset, is roughly 33% below its own record high (which was set earlier this week). The sell-off appears to have been driven by several factors – Elon Musk sudden bear market on Bitcoin, the Chinese government Prohibition Bitcoin transactions, US financial regulators express Cryptoskepticism – all of this diminished the appetite for risky crypto betting.

The SPAC boom is now subsiding. According to Reuters, a representative sample of companies that recently merged with SPACs outperformed the S&P 500 by 15 percentage points over the same period analysis. Some of the most famous SPAC deals are particularly painful. For example, the inventory of the electric vehicle manufacturer Lucid Motors (CCIV) is down over 65% from its February high.

Even the robust IPO market is slowing down. The listed fund for the Renaissance IPO (initial public offering), which tracks companies that recently went public, is down 23% from its high. The same goes for the most recent IPOs: the web hosting company Squarespace (SQSP) went public this week, but its shares are still below their reference price of $ 50. Coinbase (COIN) is also below.

Some market watchers consider these setbacks to be an appropriate correction after a long period of market euphoria. Others believe they are signs of a larger stock market bubble that is about to burst. Investors should best consider which scenario applies. If you get it right, you can benefit from a huge upward trend.

If these market moves are just a correction, now is a good time to look into stocks and cryptocurrencies that have been hurt in the past few weeks. The potential is not only to regain previous highs, but also to hit new records as consumer spending increases in the post-pandemic economy.

However, if these recent battles are signs of a wider bubble waiting to burst, then investors should be fine with stocks like financials and utilities that struggled during the pandemic but are geared for success when the pandemic fades from everyday life double .

However, risk sentiment is currently dominating. But as we saw last spring, investor risk appetite is hard to stifle.

The views and opinions expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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