The Reddit-inspired stock surge has lost some momentum.
Some of the most popular stocks among retail traders, including GameStop, AMC and Bed Bath & Beyond, have fallen sharply since the start of February, a pause in the raucous rally that drove the names to unprecedented heights.
While the social-media-fueled trading group is hardly new, the frenzy has left its mark, said Dave Nadig, chief investment officer and director of research at ETF Trends and ETF Database
“What we’re recognizing is this class of players is going to add volatility to the market,” Nadig told CNBC’s “ETF Edge” on Monday. “I think it’s a bit of a fool’s game to try to chase the next thing that they might glom onto, whether it’s AMC or Bed Bath & Beyond or whatever it might be.”
“The important is to recognize that in single names like this, there is this opportunity to get sort of run over if you’re not careful,” he said. “So, for me, it’s not directional. It’s not up or down. It’s just more volatility.”
The Cboe Volatility Index, also known as the market’s “fear gauge,” has declined by over 34% this month and is down about 4% this year despite the late January craze.
Some accepted the sharp shifts more readily than others.
“The volatility component I think is welcomed and actually embraced,” said Jeff Kilburg, founder and CEO of KKM Financial and a CNBC contributor.
“When you see this volatility, it attracts more and more not just hedge fund managers, but more institutions to really step into the game. Added volatility produces volume,” Kilburg said in the same interview.
“That type of volume produces liquidity. So, I think it’s a win-win situation, but there is a little bit of a knee-jerk reaction when you see the volatility.”
