Cannabis, crypto and meme stocks rally Monday as stock market selloff continues

Investors have found some relief in the latest rout in U.S. stocks, but not necessarily where one might expect.

While traditionally defensive sectors like utilities managed to hold onto their gains in Monday’s session, some of the other positives in the market included more speculative assets like cannabis stocks, meme stocks and crypto-currencies.

Cannabis stocks rally

Cannabis stocks have had a rough year, but some on Wall Street think that could change.

Popular cannabis names like Tilray Inc. TLRY,
Aurora Cannabis Inc. PBR
and Cronos Group Inc,
traded sharply higher Monday, extending gains from last week, a period in which all three companies posted gains of 9% or more, according to FactSet.

ETFs focused on cannabis stocks like AdvisorShares MSOS,
Pure US Cannabis ETF gained 4.5% on Monday, while other cannabis-focused ETFs like Innovation Shares Cannabis ETF THCX,
rose 1.5%.
A Wall Street analyst who covers the cannabis industry, but asked to comment on the substance, said the recent rally was driven by a confluence of factors, including hopes that a federal banking reform bill could pass the U.S. Senate this fall. Analysts also raised the possibility of Germany legalizing marijuana for adult use.

To be sure, cannabis stocks have remained well below their 52-week highs, with Aurora shares down more than 80% from their highs above $14.

Crypto-currencies rebound

After taking a beating on Friday, crypto-currencies pulled back on Monday. Bitcoin BTC USD,
rose 0.7% to return above $20,000 per coin, a closely watched technical level, according to data from CoinDesk. Ether, ETHUSD,
the No. 2 crypto currency, rose 3.9%, according to data from crypto exchange Kraken. Crypto traders bought into Ethereum before “the merger,” a long-awaited change in the framework behind the Ethereum blockchain.

While crypto-currencies climbed on Monday, Nicholas Colas, co-founder of DataTrek Research, estimated that their overall market capitalization had still fallen to about $1 trillion from a peak of $3 trillion in November 2021, in a Monday morning research note.

“This 67% drop in virtual currency values from the peak is not far from the NASDAQ 2000 – 2002 experience of a 78% drop, and it raises the question of” how do you know when a bubble has fully burst?” says Colas.

Meme stocks also outperform
Shares of Bed Bath & Beyond BBBY,
climbed 24.8% Monday as investors awaited a “strategic update” from the beleaguered retailer.

See: Bed Bath & Beyond stock blows up a day before “strategic update”

BBBY’s rally seemed to lift other meme stock names, including GameStop Corp. GME,
and AMC Entertainment Holdings Inc. AMC,

To be sure, Wall Street analysts continue to be skeptical. Of the 18 analysts listed by FactSet as covering Bed Bath & Beyond, 12 were bearish and five were neutral, while only one was bullish.

Energy stocks rise alongside oil and natural gas
West Texas Intermediate crude futures CLV22,
for October delivery climbed more than 4% Monday to settle above $97 a barrel, the highest late-day price for a front-month contract in more than a month.

Oil and gas stocks rebounded sharply as a result, and many of the biggest names in the sector were the top performers in the S&P 500 on Monday. Some of them included APA Corp. APA,
Diamondback Energy Inc. FANG,
+3,98 %,
Marathon Oil Corp. MRO,
Halliburton Corporation HAL,
and Exxon Mobil Corporation XOM,

The Energy Select Sector SPDR fund XLE,
which tracks the performance of the S&P 500 energy sector, climbed 1.5%, bringing its gains from last week to 6%.

Defensive stocks also outperform
Utility stocks are considered the ultimate defensive play due to stable cash flows that often remain resilient during economic downturns and provide large dividends. In that sense, it’s perhaps not surprising that the utilities sector outperformed the S&P 500 both Monday and over the past week. But the outperformance was not spectacular. The Utilities Select Sector SPDR XLU fund,
which tracks the S&P 500, was up 0.6%.

Utilities have outperformed the S&P 500 this year: the sector is up nearly 6% year-to-date, making utilities the best performing sector after energy.

But technical analysts also saw signs that the sector might already be overbought. Jonathan Krinsky, chief market technician at BTIG, said the utilities sector recently pulled back from the widest gap from its 200-day moving average in seven years. That could be a sign of more pain to come.

U.S. stocks closed lower Monday as the massive sell-off continued. On Friday, the S&P 500 SPX,
and Nasdaq Composite COMP,
recorded their worst daily decline since mid-June due to hawkish comments from Federal Reserve Chairman Jerome Powell.

Dow Jones Industrial Average DJIA,
fell 0.6% on Monday, after plunging 1,000 points on Friday.

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