Retail traders’ thirst for small caps has advantage: Wells Fargo’s Harvey

A popular spot for retail investors could generate the biggest returns of the year.

Wells Fargo Securities’ Chris Harvey said he believes the affinity for small caps has value because growth stocks have gotten so expensive.

“Retail is very influential,” the company’s head of equity strategy told CNBC’s “Trading Nation” on Wednesday. “They are becoming a bigger part of the market and they are here to stay.”

Harvey sees zero percent trading platforms like Robinhood coupled with social media chat rooms as the main drivers behind the retail craze. In a special note to Trading Nation, he stated that he “is not as mad as others when it comes to retail activities”.

Aside from the epic brief bottlenecks, he sees retail investors giving a boost to an important part of the market associated with the economic recovery.

“They have a huge impact on stocks with market capital of $ 5 billion or less, $ 10 billion or less,” Harvey said.

Harvey, who got off to a bullish on small caps, notes that there has been a significant amount of short covering in the group for some time.

“If this continues, things can get a little too frothy. You can separate price from fundamentals,” he said. “But we’re not there yet.”

The new goal

It appears that Reddit’s WallStreetBets retail investors have a new target. You switched to cannabis stocks from GameStop and AMC Entertainment.

The frenzy has helped Tilray, which had a market cap of $ 10.1 billion at the close of trading on Wednesday, soar 143% over the last five sessions in hopes of Democrats passing federal law that legalizes the plant.

While small caps continue to attract attention, Harvey warns that the mega high tech momentum names will stumble.

“Whether you’re in the grocery store or on the stock exchange, when something is plentiful, you don’t pay a premium for it,” said Harvey. “Right now you are paying a real premium for growth.”

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