All In! Investors Frenziedly Buy U.S. Tech Stocks and Popular Meme Stocks

Investors are abandoning caution and rushing into the most speculative and volatile corners of the U.S. stock market, with the S&P 500 index approaching an all-time high.

On Thursday, risk appetite in the U.S. stock market remained strong, with Meta leading the seven tech giants, and Nvidia closing at a new high, pushing the S&P index and NASDAQ Composite Index close to historical peaks.

According to Bloomberg, the Invesco S&P 500 High Beta ETF, which tracks high-volatility stocks, is experiencing its best quarter since 2020 relative to the Invesco S&P 500 Low Volatility ETF. Meanwhile, Goldman Sachs' indicator tracking weak balance sheet stocks relative to the S&P 500 is on track for its best monthly performance since January.

Despite the impending expiration of Trump's tariff suspension plan in two weeks, signs of economic slowdown and weakening consumer confidence are increasingly evident, along with ongoing uncertainties in the Middle East, investors seem to be ignoring these risks.

"This is the beginning phase of the FOMO (fear of missing out) sentiment that occurs after every structural bull market — it has always been this way," said Julian Emanuel, Chief Equity and Quantitative Strategist at Evercore ISI. "What surprises us is how quickly speculative sentiment has been accepted, considering the record pessimism over two months ago and the ongoing significant economic and policy uncertainties."

Retail Investors Take the Lead, Tech Giants Reclaim Leadership

Individual investors, who favor momentum stocks, have become a key force in this round of chasing risk assets. They continued to buy in early April when U.S. stocks were on the brink of a bear market, while institutions chose to sell during the market crash triggered by tariffs.

Goldman's basket of large tech stocks soared to an all-time high.

Large tech companies have been the main drivers of the market over the past two years. Although the rise of DeepSeek once raised concerns about AI dominance, they are now back to being the "leaders" of the U.S. stock market.

Keith Lerner, Co-Chief Investment Officer at Truist Advisory Services, stated, "Once the tariffs ease, investors return to the dominant theme, which is AI."

The strength of tech stocks is not only a reflection of sentiment but is also supported by strong earnings expectations, driving the overall earnings growth of the index. It is projected that the earnings of the S&P 500 index will grow by about 8% this year compared to last year, with the information technology sector expected to grow nearly 21%, the strongest among all sectors.

"In times of uncertain earnings prospects, investors are gravitating towards areas with clearer long-term themes," Lerner added. This explains why funds continue to concentrate on a few tech giants.

Forgotten Small-Cap Stocks

The extreme focus on large tech stocks has led to a renewed decline in market breadth in the U.S. stock market.

This has even suppressed the performance of another traditional high-risk corner of the market—small-cap stocks. Year-to-date, the Russell 2000 Small-Cap Index and the S&P 600 Index, which only includes profitable small companies, have both underperformed the S&P 500 Index.

Analysis points out that the fundamental reason lies in the relatively low weight of technology stocks in these small-cap indices. In the S&P 500 Index, the combined weight of the information technology and communication services sectors is close to 43%; however, in the Russell 2000 Index, this proportion is only 13%, and in the S&P 600 Index, it is also only around 16%. This structural difference has led to the overall marginalization of small-cap stocks in the current market environment