Stock market’s riskiest fringes rally despite warning signals

Risk appetite returned after Chinese officials vowed to support economic growth, and OPEC+ agreed to open its oil taps faster in the summer months, which could lower oil prices and ease inflationary pressures. While the news helped trigger a broad equities rally, it was the market’s beaten down riskier districts that staged the biggest rebound.

“Today’s news on the macro front provides more catalysts for risk sentiment to improve after a brutal eight weeks of selling,” said Gareth Ryan, managing director at IUR Capital. “Risk assets can only remain oversold for so long before they begin to look attractive for the opportunist.”

Thursday’s advance came as private hiring data posted the smallest gain since the pandemic recovery began and Fed Vice Chair Lael Brainard threw cold water on a September pause in rate hikes. In addition, Goldman President John Waldron decided to echo Jamie Dimon’s pessimistic tone from Wednesday and warn of tougher times ahead amid a string of shocks rattling the global economy.

Whether speculative fringes of the market are at an inflection point or simply hitting an air pocket remains to be seen. But traders are aware that prior similar rebounds this year have turned out to be head-fakes. Since a Goldman Sachs gauge of non-profitable tech stocks peaked in early November, it has posted four other days of roughly 8% gains. That hasn’t stopped the gauge from falling for seven months in a row, the longest stretch of declines since its 2014 inception.