High-BETA stocks fall faster when U.S. equity markets head lower, despite lower volatility

By Jeffrey Cohen, President, US Advanced Computing Infrastructure, Inc.
Illinois Registered Investment Advisor, and friend to all in the markets

Story is a work in process. 

This has been an unusually bad week for high beta stocks that have low volatility (relative to their high beta). As the market has corrected, so too have these stocks.

A few examples:
TNA - The 3x small cap ETF, Direxion Daily Small Cap Bull 3X Shares, is down 25%, and looks very much like a hill, up fast and down fast.
OPEN - Open Door Technologies down about a third this week on a lower earnings forecast for Q3
BETR - Better Homes and Financing down sharply today on news of a 50:1 reverse split
SMCI - Super Micro Computer, Inc. is down 25% this week, along with Intel $INTC, potentially on earnings.
QBTS - D-Wave Systems down 25% on quantum computing concerns
RGTI - Rigetti Computing also down 25% on quantum computing concerns

This is all happening at the same time that the S&P 500 ETF is down around 5%, but mostly in a downward direction. Today the market is higher, taking back about a third of the loss, but the damage to high BETA stocks is already done.

In conclusion, the benefit of holding high beta and low volatility stocks is that they do very well when the market is rising steadily. They move higher, often in lock-step with the overall market, and rarely have negative surprises. However, when the markets correct, these stocks also move quickly downward. The news driving the declines seems independent (reverse split, earnings surprise, etc.) but the declines happen. If you invest in high beta stocks, hedge against the downside risk.

The other thing about these stocks is that the market has a short memory, and it is likely that if they can find their footing and rise again on good market news, they can keep their position and market focus, and rise again.