Investors shift toward value as market froth, meme stock mania stir caution

After months of tech-led gains and macro-driven trading, investors are rediscovering the appeal of stock picking, focusing on undervalued companies with solid fundamentals over hype-fueled names like Nvidia (NVDA) or Microsoft (MSFT).

As The Wall Street Journal reports, retail investors such as Detroit-based analyst Chase Goodman are digging into corporate filings and buying lesser-known stocks like Photronics (PLAB) and Medallion Financial (MFIN), which trade at more modest valuations.

This rotation comes as sky-high valuations, especially in tech, have prompted concerns about a bubble. The Standard & Poor’s 500 (SP500) stock index recently traded at more than 22 times forward earnings, well above its 10-year average, according to Dow Jones Market Data.

Meanwhile, retail-driven speculation has reemerged, with meme stocks like Opendoor (OPEN) and Kohl’s (KSS) briefly soaring before losing momentum. Last week, Opendoor (OPEN) accounted for nearly 10% of total U.S. stock market volume in a single day, Bloomberg News noted.

Although these frenzies echo the GameStop (GME) rally of 2021, the environment today is very different. Higher interest rates and policy uncertainty, especially around U.S. tariffs, have added to market risks. Margin debt has hit record levels, and traders are increasingly hedging against a potential correction.

“It’s getting this kind of ’90s, dot-com bubble feel to it,” Sam Yocum, a private equity executive who has shifted money into utility stocks like Duke Energy (DUK), said to the Journal. Others, like Angel Diaz in Texas, are dumping tech in favor of dividend-payers like AES (AES) and Two Harbors (TWO), seeking stability over growth as retirement nears.

Despite the speculative froth, many strategists remain optimistic about the broader market, at least for now. Expectations that the Federal Reserve may cut rates later this year could provide a tailwind for equities, Don Calcagni, chief investment officer at Mercer Advisors, said to Bloomberg News. Still, analysts caution that a Fed delay or inflation flare-up could trigger a pullback.

The meme stuff is kind of disturbing, Mapsignals Chief Investment Officer Alec Young said to Bloomberg News, adding that trade deals are landing better than feared, and the market is reacting to that.

While short-term dips are possible, some investors are ready to buy the dip.

Any near-term pullback looks like a buying opportunity given the current backdrop, Ross Mayfield, investment strategist at Baird, said to Bloomberg News.