SPACs are growing, chatroom trading is all the rage, and bitcoin is skyrocketing – sometimes it seems like 2021 all over again.
Similar speculative behaviors are being fueled by the Federal Reserve’s December rate-cut announcement, which sent off a wild rally to all-time highs and unleashed animal spirits from the depths of the epidemic.
Michael Hartnett, chief investment strategist at BofA Global Research, said over the phone that “the animal spirits are reviving.” According to him, the most notable example is the recent surge in developing market distressed debt, which has increased by around 25% from October’s lows.
“People don’t purchase distressed debt from developing markets when they want to be secure. Although they weren’t the destinations to be, Hartnett said that Argentina and Nigeria are today. “The Fed’s pivot is the driving force behind all of this.”
The current prevailing opinion is that before a series of rate cuts occur, the economy will escape a recession and inflation will drop near the central bank’s 2% objective.
This belief is what is pushing investors into the riskiest areas of the market.
The S&P 500 has increased over the last four months due to these combined optimism, setting records each time it crossed the 5,000 mark. On Thursday, the Nasdaq Composite closed above its record set in 2021.
Additionally, cryptocurrency has joined the group. This week, Bitcoin saw its first price of $64,000 since November 2021. It had advances for six months in a row, rising by about 45% in February alone.
In the meanwhile, the “WallStreetBets” Reddit community is buzzing once again, with retail traders praising both their newfound affection for Palo Alto Networks and their old fave, GameStop.
It would be understandable for an investor to believe that the 2022 recession never occurred. According to alternative data source Quiver Quantitative, an indicator measuring the tone of discussions on the Reddit site has reached its highest optimistic level since June 2021.
Referring to the fervor around “You Only Live Once,” Scott Rubner of the Goldman Sachs trading floor said in a note, “‘The Return of the YOLO’ was not on my February bingo card.” “There is the most activity on the message boards since March 2020.” Every morning I have to wake up wondering, “What stock can rally 50% by Friday?” He added, “U.S. Equities have entered a moment of frenzy.
Even the pandemic marvel known as special purpose acquisition companies, or SPACs, is beginning to emerge from its two-year hibernation.
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According to SPAC Research, there have been more pending SPAC IPOs in the first two months of 2024 than there were in the whole year of 2023, with 33. Notably, Webull, a digital investment platform, intends to go public via a SPAC offering, valuing the company at an astounding $7.3 billion.
The head global strategist at LPL Financial, Quincy Krosby, said over the phone that “animal spirits, they don’t necessarily start with the biggest animals in the jungle.” As further proof, she cited a rush of biotech and pharmaceutical mergers and acquisitions.
Others, however, think that the market’s surge has been warranted by the excitement around artificial intelligence and its potential to boost business earnings in the future. According to billionaire investor Ray Dalio’s standards, there is no speculative bubble in the US stock market.
“We live in a risk-taking society until [the Fed pivot] is proven to be incorrect,” Hartnett said.
source : cnbc.com
