Risk preference is quietly heating up, high-risk stocks outperforming the S&P 500 index.

On Monday, investors flocked to the riskiest areas of the US stock market, bringing a huge boost to underperforming stocks from last year. Loss-making tech companies, distressed companies, and companies with high short positions were the big winners on Monday. In the first few trading days of 2025, these stocks outperformed the S&P 500 index. Goldman Sachs Group, Inc.'s index of unprofitable tech stocks closed up 3.3%, while the index of the most shorted stocks rose 1.8% at one point but ended the day almost unchanged. Last year, both of these Goldman Sachs Group, Inc. indices (especially the one tracking unprofitable tech companies) lagged behind the benchmark index. Michael O'rourke, chief market strategist at Jonestrading, said, "Following Christmas, the election fever has re-emerged. This is aggressive risk trading. I think this is a short-term phenomenon at the beginning of the year and may lose steam by the end of the week." Unprofitable tech stocks in 2024 significantly underperformed the S&P 500 index. However, the rise in risk appetite did not provide much of a boost to small-cap stocks, with the Russell 2000 index lagging behind the S&P 500 index on Monday. The Russell 2000 index fell by 0.1%, while the S&P 500 index rose by 0.6%. The emergence of risk trading comes at a time of increasing global uncertainty. US President-elect Donald Trump is likely to introduce a new round of tariffs after taking office later this month, sparking a trade war with major allies. The Federal Reserve's interest rate path is also unclear, as inflation remains more stubborn than expected. Meanwhile, concerns about the high valuation of tech stocks are escalating. Despite these concerns, a series of positive news announced on Monday pushed tech stocks higher. First, Hon Hai Precision Industry Co., the server assembly partner of NVIDIA Corporation (NVDA.US), reported that its revenue growth is faster than expected due to the ongoing demand for AI infrastructure. Then, Qualcomm (QCOM.US) launched a new chip aimed at powering personal computers capable of running the latest AI software, at a cost of only $600. Investors also expect a speech from NVIDIA Corporation CEO Jensen Huang to boost the stock price of the chip maker. Dave Lutz, stock sales trader and macro strategist at Jonestrading, said, "The news from Hon Hai, coupled with the anticipated announcements from the Consumer Electronics Show, seems to be triggering widespread buying of tech stocks, leading to a significant short squeeze." A short squeeze refers to traders who are short selling a stock being forced to buy it back to cover their losses. This covering further drives up the stock price.