Bitcoin to the moon, the rise of special purpose acquisition companies (SPACs), and chat room trading all the rage – it can feel like 2021 all over again. The Federal Reserve's interest rate cut signal in December sparked a furious rally to record levels, unleashing animal instincts that have been fueling similar speculative activity from the depths of the pandemic. “Animal instincts are reviving,” Michael Hartnett, chief investment strategist at Bank of America Global Research, said in a phone interview. The most glaring example is the rise in distressed debt in emerging markets, which has risen about 25% from its October lows, he said. “When people want to play it safe, they don't buy distressed emerging market debt,” Hartnett said. “Nigeria and Argentina are not the places, but they are now.” “The catalyst for all of this is the Fed’s pivot.” Today's conventional wisdom pushing investors into some of the riskier parts of the market goes like this: Inflation will fall to the central bank's 2% target while the economy will avoid recession before a series of interest rate cuts arrive. These combined hopes have pushed the S&P 500 higher for four straight months, setting consecutive records above the 5,000 level. The Nasdaq Composite just surpassed its 2021 record close on Thursday. BTC.CM= Bitcoin's mountainous Cryptocurrency since the beginning of the year has joined the party as well. Bitcoin touched $64,000 this week for the first time since November 2021. It jumped nearly 45% in February alone, the sixth straight month of gains. Meanwhile, the “WallStreetBets” forum on Reddit is hot again, with retailers touting old GameStop favorites and new games ranging from Palo Alto Networks to Snowflake. An investor might be forgiven for thinking that the 2022 recession never happened. The index measuring discussion sentiment on a Reddit forum recently reached its most bullish level since June 2021, according to alternative data provider Quiver Quantitative. “‘YOLO is back’ was not on my bingo card for February,” Scott Rubner of Goldman Sachs’ trading desk said in a note, referring to the “You Only Live Once” enthusiasm. “Activity on message boards is at the highest level since March 2020. I need to wake up every morning to see what stock could go up 50% by Friday,” he wrote. “US stocks have entered a period of euphoria.” Even those pandemic wonders known as SPACs , or special purpose acquisition companies, are showing signs of recovery after suffering from a drought over the past two years.There were 33 pending SPAC IPOs in just two months of 2024, more than the number in all of 2023, according to SPAC Research. Digital investment platform Webull plans to go public through a SPAC deal that values the company at a whopping $7.3 billion. “Animal instincts don't necessarily start with the biggest animals in the jungle,” Quincy Crosby, chief global strategist at LPL Financial, said by phone. She pointed to a wave of mergers and acquisitions between biotech and pharmaceutical companies as further evidence. Certainly others believe the market rally was justified by enthusiasm for artificial intelligence, and the contribution it is likely to make to future corporate profits. Billionaire investor Ray Dalio said the US stock market is not in a speculative bubble based on his standards. “until [the Fed pivot] “If it turns out to be wrong, risk is what we live for,” Hartnett said.
