Market animal spirits are back, fueling speculation similar to 2021 | Private Equity Weekly
Bitcoin goes to the moon, SPACs rise, chat room trading is all the rage—it feels like 2021 all over again. The Fed’s signal to cut interest rates in December triggered a violent rally that hit record highs, unleashing animal spirits and fueling similar speculation during the worst of the pandemic. “Animal spirits are having a resurgence,” Michael Hartnett, chief investment strategist at Bank of America Global Research, said in a phone interview. The most obvious example is the rebound in emerging market distressed debt, which is up about 25% from the October low, he said. “When people want to play it safe, they don’t buy distressed debt in emerging markets. Nigeria and Argentina were not the place to be, but they are now,” Hartnett said. “The catalyst for all this is the Fed’s pivot.” Today, the conventional wisdom driving investors to the riskiest parts of the market is this: Inflation will fall to the central bank’s 2% target and the economy will avoid recession before a series of rate cuts arrive . Together, those hopes have propelled the S&P 500 to four consecutive months of gains, hitting the 5,000-point milestone in a row. On Thursday, the Nasdaq Composite just topped its 2021 closing record. BTC.CM=YTD The Bitcoin cryptocurrency has also joined the ranks. Bitcoin hit $64,000 this week for the first time since November 2021. In February alone, Bitcoin rose nearly 45%, marking its sixth consecutive month of gains. Meanwhile, the “WallStreetBets” forum on Reddit has become popular again, with retail investors touting old favorite GameStop and new favorites from Palo Alto Networks to Snowflake. Investors could be forgiven for thinking the 2022 recession never happened. An index measuring sentiment in Reddit forum discussions recently hit its most bullish level since June 2021, according to alternative data provider Quiver Quantitative. “‘YOLO is back’ is not on my bingo card for February,” Scott Rubner of Goldman Sachs’ trading desk said in a note, referring to the enthusiasm for “You Only Live Once.” . “Message board activity is at its highest level since March 2020. I wake up every morning and need to see ‘Which stock will rise 50% by Friday’… The US stock market has entered a euphoric period,” he wrote road. Even the pandemic wonders known as SPACs, or special purpose acquisition companies, are showing signs of recovery after a drought of the past two years. Data from SPAC Research shows that there are 33 SPAC IPOs pending in just two months in 2024, exceeding the number in all of 2023. It is worth noting that digital investment platform Webull is planning to go public through a SPAC transaction, which values the company at as much as $7.3 billion. “Animal spirits, you don’t necessarily start with the biggest animal in the jungle,” Quincy Krosby, chief global strategist at LPL Financial, said on the call. She pointed to a string of mergers and acquisitions among biotech and pharmaceutical companies. as further evidence. To be sure, others believe the market is rising because of enthusiasm for artificial intelligence and its potential contribution to future corporate profits. Billionaire investor Ray Dalio says that based on his criteria, the U.S. stock market is not in a speculative bubble. “Until (the Fed’s pivot) turns out to be a mistake, risk-taking is our life,” Hartnett said.
