Institutional investors hedge risk, retail investors buy dip in tech stocks: Schwab strategist.

Charles Schwab's head trading strategist, Joe Mazzola, notes a divergence between institutional and retail investor behavior. Institutions are hedging against downside risks, while retail investors remain optimistic, particularly in tech stocks, despite the market volatility.

As the U.S. stock market continues to navigate through a period of heightened volatility, a notable divergence in behavior between institutional and retail investors has emerged. Charles Schwab's head trading strategist, Joe Mazzola, has highlighted this discrepancy, which is particularly evident in the tech sector. While institutional investors are increasingly hedging against downside risks, retail investors remain optimistic, especially when it comes to high-growth tech stocks.

The current market environment is characterized by ongoing U.S.-China trade tensions and a looming deadline for President Donald Trump’s proposed 100% tariffs on China. These factors have contributed to elevated levels of market volatility, as indicated by the Cboe Volatility Index (VIX), which reached a four-month high above 22 in early September, according to a MarketWatch report. Despite this uncertainty, retail investors continue to show confidence in the tech sector, particularly in high-growth stocks like ACADIA Pharmaceuticals (ACAD) and Kiniksa Pharmaceuticals International (KNSA).

Institutional investors, on the other hand, are adopting a more cautious approach. They are actively hedging their portfolios to mitigate potential losses, reflecting a risk-averse stance. This divergence in investor behavior is further highlighted by the fact that while the VIX has seen higher lows forming, institutional investors remain focused on preserving capital rather than pursuing aggressive growth opportunities.

The tech sector, in particular, has seen robust performances from companies like ACADIA Pharmaceuticals and Kiniksa Pharmaceuticals. ACADIA, a biopharmaceutical company, has demonstrated a remarkable surge in earnings growth, outpacing the biotech industry with a 626.8% increase over the past year. Despite this, its revenue growth projection of 9.6% annually trails behind the broader U.S. market expectation of 10%, according to a Simply Wall St analysis. Similarly, Kiniksa Pharmaceuticals International has transitioned from a net loss to reporting substantial net income, underscoring its commitment to innovation and growth.

However, the continued market volatility and the approaching deadlines for trade tensions could lead to further uncertainty. As institutional investors remain cautious, the market may experience periods of heightened volatility, which could impact retail investor optimism. Nonetheless, the tech sector's potential for growth, driven by trends like artificial intelligence and data center expansion, continues to attract retail investors.

In conclusion, the divergence between institutional and retail investor behavior in the current market environment highlights the varying risk appetites and investment strategies. While institutional investors focus on hedging against downside risks, retail investors remain optimistic about high-growth tech stocks. This dynamic is likely to shape the market's trajectory in the coming months, as investors navigate the complex landscape of trade tensions and market volatility.