Stock Market Gamblers Let It Ride Again in Brutal Year

Like stuck card players trying to win it all back in one hand, equity bulls are dialing up risk appetites at the tail-end of a brutal year.

Active stock managers are adding to positions. Option markets show a trend toward hedging, a sign professional traders are dipping back into equities. Beyond institutional circles, demand for meme stocks springs eternal, with chat-room favorites like AMC Entertainment posting big days.

Fueling the momentum, as usual, is speculation about a policy shift at the Federal Reserve -- hopes that took lumps Friday when US hiring and wage growth rose past forecasts. While changes in market leadership may portend a sturdier future for a rally that has lifted the S&P 500 14% since October, it remains hard to distinguish the latest bull run from those that fell apart earlier this year.

“You’ve just got a tough market in terms of folks hoping for signs of some reprieve, but realizing that conditions are still relatively tough,” said Lisa Erickson, senior vice president and head of public markets group at US Bank Wealth Management. “We are more skeptical that this rally is durable regardless of which sector or which style like value or growth is leading it.”

The problem for bulls is that the latest revival of risk appetites is a near-perfect rerun of the situation in early August, when active managers and hedge funds dialed up exposure and meme stocks in some cases doubled and tripled. That episode ended in disaster for bulls, with the S&P 500 plummeting more than 15% over eight weeks. Plenty of pundits see the potential for the same fate this time.