Mission accomplished! Retail investors are busy cashing out, is this round of US stock frenzy coming to an end?

Retail traders are starting to worry that the frenzy in the US stock market won't last long. The gains in the stock market this year have almost wiped out the losses in 2022, and some small investors are taking profits and selling high-risk investments as they consider whether the few tech companies that have been driving the major stock indices can continue to support the market. Currently, both retail traders and Wall Street professionals are concerned: just like the overall economy, the performance of the US stock market has been quite good, but many people cannot shake off a worry that the upcoming headwinds will further deteriorate the stock market.

For example, David Noonan, a 45-year-old full-time trader from California, has been trading options on large tech stocks and popular indices, including the S&P 500 and the Nasdaq 100, over the past year. But now, except for some short positions in Apple (AAPL.US) that will expire at the end of this year, most of his assets have been converted into cash. He said, "I'm just looking at where interest rates are and the crowding we're seeing in the seven tech giants. I just have a feeling. If you see people starting to sell and take profits, it could create a waterfall effect. People start locking in gains, which accelerates the selling."

Since the beginning of this year, the S&P 500 has risen nearly 19%, and the Nasdaq 100 has risen about 46%. Some market observers are concerned that this rally is overly inflated and overly reliant on large tech companies. In the recent earnings season, disappointing prospects for giants like Apple and Meta (META.US) have heightened concerns about future growth potential. In addition, geopolitical factors could also harm the operations of tech companies. Not to mention, an economic recession is still possible in 2024.

Data from Standard & Poor's Global Market Intelligence shows that retail investors sold nearly $16 billion worth of stocks in October, surpassing any month in the past two years. Interest in several exchange-traded funds (ETFs) betting on the tech sector has also declined recently. Data shows that the outflows from ProShares UltraPro QQQ this month have reached nearly $1.5 billion, the highest level since January; the fund's daily performance is based on the triple of the tech-heavy Nasdaq 100 index.

Gerardo Giusti, a 50-year-old retail trader from Maine, believes that the largest tech companies are still good long-term investments, but the short-term situation is another matter. His options strategy usually focuses on companies like Tesla (TSLA.US) and Microsoft (MSFT.US). However, he ended his last tech stock trade during Thanksgiving week to secure his profits. He said, "I don't think these companies will outperform the market as they did in the past. Their pricing is almost perfect."

He pointed out that the economic slowdown and the volatility around the 2024 US presidential election may be the reasons for the difficult stock market trend next year, especially in the first few months. He plans to invest more in hedging tools such as gold or cryptocurrencies, as well as potential cyclical industries including industrial, materials, and energy, as these industries may experience a rebound. His strategy may involve buying industrial stocks and focusing on call options for the iShares Russell 2000 ETF, which bets on the price of a security going up.

Of course, this largely depends on the actions of the Federal Reserve. In the recent meeting, policymakers stated that they would "proceed cautiously" with future interest rate changes. The optimism surrounding rate cuts starting in 2024 has driven the stock market surge in recent weeks. Giusti said that if the Federal Reserve does indeed start cutting rates, he may change his strategy and bet on a surge in tech stocks.

Meanwhile, 34-year-old retail trader Ashton Jones from Jacksonville, Florida still believes that the stock market rally may continue until the end of the year, leading to what people commonly refer to as the Christmas rally. However, he expects a pullback in January next year. He plans to short the market starting from January to mitigate risks. He said, "When the market rises like this without being affected by gravity, there will inevitably be a correction. Just based on seasonal factors, there will be profit-taking."