Animal spirits are famously running wild across Wall Street, but crunch the numbers and this bull market is even crazier than it seems.
Global stocks are now worth around $100 trillion. American companies have raised a record $175 billion in public listings. Some $3 trillion of corporate bonds are trading with negative yields.
All the while the virus spreads, the economic cycle stays on life-support and businesses get thrashed by fresh lockdowns.
Spurred by endless monetary stimulus and bets on a post-pandemic world, day traders and institutional pros alike are enjoying the easiest financial conditions in history.
“Sentiment indicators are moving to euphoria,” said Cedric Ozazman, chief investment officer at Reyl & Cie in Geneva. “People are now jumping to invest amid fears they will miss the Santa Claus rally.”
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Here are the signs of market froth in this year of death, disease and economic calamity.
Nothing evokes a stock peak like a rush to the public markets. Debuts from Snowflake Inc. to Airbnb Inc. took this year’s initial public offerings volume to a record $175 billion in the U.S., data compiled by Bloomberg show.
Special-purpose acquisition vehicles that raise money for a “blank check” company to buy whatever it wants have raised over $60 billion in 2020. That’s more than the previous decade combined.
Investors still can’t get enough. The first-day return for IPOs averaged 40% this year, the highest ever other than 1999 and 2000, according to one estimate.
All that has drawn unprecedented interest in the Renaissance IPO exchange-traded fund tracking new listings, up more than 100% this year this year. Even SPACs that haven’t announced an acquisition target are up almost 20% in 2020, Bespoke Investment Group noted.
“If that isn’t a sign of exuberance, we don’t know what is!” Bespoke analysts wrote in a note.
Robinhood traders have become the talk of Wall Street this year by speculating on everything from tech options to airline shares. With these retail investors chasing the equity rally along with institutional pros, the S&P 500 is trading with a sales multiple some 16% above the 2000 peak.
Everything is going up. A Goldman Sachs basket of the most-shorted stocks in the Russell 3000 has surged about 40% this quarter, triple the broader index. High-beta shares are near their highest versus low-volatility ones since 2011.
Every time the Russell 2000 has surged more than 95% off its trough, it has gone on to lose money over the next three months, according to SentimenTrader. It is now up roughly 100% from its…