MW Buy-the-dip retail investors are getting bolder, just when the risks are getting bigger, say analysts

By Barbara Kollmeyer

Vanda sees trouble as investors move into more volatile, smaller AI stocks

Thursday could be the day that U.S. stocks shut the door, for now, on the volatile ride of the past few months and usher in the bulls.

The S&P 500 SPX is sitting on the doorstep of 6,000, and is a fraction of a percentage point from a 20% bounce off the April 8 low, meeting at least one definition of a bull market. Stock futures are just in the green.

Read: The two rules investors need to follow right now as the S&P 500 eyes a return to 6,000

A round of thanks is clearly owed to retail investors, who have been faithfully buying the dip as institutional investors and hedge funds shied away. Not everyone is enthusiastic, though.

Panmure Liberium analysts Joachim Klement and Susana Cruz, say the recent U.S. stock rally is standing on shaky ground. "While retail investors are becoming more bullish in U.S. equities again, hedge funds continue to increase their bets against U.S. markets and in favor of international stocks. Historically, this was the worst time to invest in U.S. stocks," they wrote.

The pair offer up another red flag warning via their proprietary sentiment indicator that they said shows the highest overvaluation versus fundamentals in the U.S. in the last 10 years.

"The last time we had similar overvaluation was in August 2022, before the S&P 500 dropped almost 20% and before that in March 2019, before the index dropped almost 10%," Klement and Cruz told clients in a note Thursday.

More insight into the retail side comes from Vanda Research, whose analysts say that since April's dip-buying victory, those investors have been getting bolder and "pushing deeper into riskier corners of the market."

"With profits locked in from core holdings like NVDA $(NVDA)$ and other Mag 7 names, mom-and-pop traders appear increasingly comfortable venturing into higher-beta plays, from small caps to second-derivative AI themes," Vanda's Marco Iachini and Lucas Mantle told clients in a fresh note. Higher-beta refers to more volatile and perceived riskier stocks.

"This behavior, while not unusual, suggests a level of complacency that may be mismatched with still-lingering macro risks and thus adds to our sense that we are living in the final innings of the current equity rally," said the pair.

They surmise that emboldened investors have been taking profits out of major technology stocks to buy smaller-cap AI data center, quantum computing and nuclear power names.

Read: 10 nuclear stocks expected to rise as much as 94% after Meta-Constellation deal

Iachini and Mantle said some of the most purchased Russell 2000 RUT names in the past month include D-Wave Quantum $(QBTS)$, AI-infrastructure company Applied Digital $(APLD)$, which earlier this year signed lease deals with cloud provider CoreWeave $(CRWV)$, BigBear.ai $(BBAI)$, Rigetti Computing (RGTI), SoundHound AI $(SOUN)$ and IonQ $(IONQ)$.

Over 12 months, those stocks have seen strong gains, with D-Wave and Rigetti up over 1,000%, and others are up 100% or more. For 2025, most are in the red, though D-Wave and Applied Digital are up 112% and 73%.

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are slightly higher, with Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD30Y holding mostly steady around the lowest levels in weeks, reached Wednesday.

   Key asset performance                                                Last       5d     1m     YTD      1y 
   S&P 500                                                              5970.81    1.40%  6.03%  1.52%    11.52% 
   Nasdaq Composite                                                     19,460.49  1.88%  9.71%  0.78%    13.22% 
   10-year Treasury                                                     4.372      -5.20  -0.90  -20.40   8.00 
   Gold                                                                 3390.8     1.44%  2.43%  28.47%   41.57% 
   Oil                                                                  62.7       2.92%  4.03%  -12.76%  -17.14% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

PVH stock $(PVH)$ is sliding after the Calvin Klein and Tommy Hilfiger parent cut its full-year profit outlook, citing tariff impacts.

Weekly jobless claims and the U.S. trade deficit are due at 8:30 a.m. Eastern.

The European Central Bank is expected to cut interest rates again, by 25 basis points, with a decision at 8:15 a.m. Eastern, followed by a news conference.

A pair of IPOs are ahead - stablecoin issuer Circle Internet Group $(CRCL.UK)$ will debut on the New York Stock Exchange, after pricing shares at a higher-than-expected $31 each, and fintech Chime Financial $(CHYM)$, priced between $24 and $26 a share for the Nasdaq.

Earnings are due later from Lululemon $(LULU)$ and Broadcom $(AVGO)$.

Daily active users of Temu and Shein in the U.S. tumbled in May amid Trump's tariff curbs.

President Trump announced a travel ban on a dozen countries, and curbs on others such as Cuba.

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The chart

Bespoke Investments analysts took a look at how earnings really affect overall returns for the S&P 500, by examining what would happen if investors just own the index during the first, second and third month of each quarter. Their chart shows that early birds appear to get the worm. Those investors who only owned it during the first month of each quarter would be up 370.2%, and those owning during the second month would realize gains of 143.6%, while owning it for the last month of each quarter would mean gains of 46.1%. They say that could be down to institutional flows, but in the last 25 years, the first quarter has mattered more and done particularly well since the global financial crisis.

Top tickers

These were the most active tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   GME     GameStop 
   PLTR    Palantir Technologies 
   AAPL    Apple 
   TSM     Taiwan Semiconductor Manufacturing 
   MULN    Mullen Automotive 
   AMD     Advanced Micro Devices 
   AMZN    Amazon.com 
   NIO     NIO 

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-Barbara Kollmeyer

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June 05, 2025 07:02 ET (11:02 GMT)

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