The Wall Street speculative frenzy is even crazier than it seems

Animal spirits famously run wild across Wall Street, but crush the numbers and this bull market is even crazier than it seems.

Global stocks are now worth about $ 100-trillion. American companies have raised $ 175bn ever in public listings. About $ 3-trillion of corporate bonds trade with negative yields.

Throughout the time the virus spreads, the economic cycle stays life-sustaining and businesses are overcome by new locks.

Driven by endless financial stimulus and bets on a post-pandemic world, day traders and institutional pros alike enjoy the easiest financial conditions in history.

“Sentiment indicators are moving into euphoria,” said Cedric Ozazman, chief investment officer at Reyl & Cie in Geneva. “People are now jumping into investment amid fears they will miss the Santa Claus rally.”

The signs of market turmoil during this year of death, disease and economic turmoil are:

IPO Boost

Nothing brings the climax of a stock as a rush to the public markets. Debuts from Snowflake to Airbnb took 2020 initial public offering volumes (IPOs) to a record-high of $ 175bn in the US, data collected by Bloomberg show.

Special purpose procurement vehicles (SPACs) that raise money for a “blank check” company to buy whatever it wants have raised more than $ 60bn in 2020. That’s more than the previous decade combined .

Investors still can’t get enough. First day earnings for IPOs averaged 40% in 2020, the highest ever except 1999 and 2000, according to one estimate.

All that has drawn unprecedented interest in the Renaissance IPO exchange fund tracking new listings, up more than 100% in 2020. Even SPACs that have not announced a procurement target are up nearly 20% in 2020, he noted Bespoke Investment Group.

“If that’s not a sign of exuberance, we don’t know what is!” Purposeful analysts wrote in a note.

Stock rally

Robinhood traders have become the talk of Wall Street this year by speculating on everything from technology options to airline shares. With these retail investors chasing the equity rally along with institutional benefits, the S&P 500 is trading with sales multiples about 16% higher than the 2000 peak.

Everything is going up. Goldman Sachs’ basket of the shortest stocks in the Russell 3000 has increased by about 40% this quarter, trebling the broader index. High beta shares are near their highest against low volatility since 2011.

Each time the Russell 2000 has swung more than 95% off its trunk, it has gone on to lose money over the next three months, according to SentimenTrader. It is now up about 100% from its low in March.

Options frenzy

Bullish retail investors have plunged into the complex world of derivatives like never before this year. Over the past 20 days, the highest average of around 22 million call contracts traded daily across US exchanges.

Cboe’s demand-equity ratio has dropped nearly a decade low – a sign that traders have never been so hell-bent on chasing down in single stocks.

Unia mania

Animal spirits in corporate boardrooms are another scandalous sign at the top of the market. This quarter is preparing to be the strongest for bargaining activity since 2016 after the third-highest quarter ever. S&P Global which buys IHS Markit and Micro Devices Advanced which takes over Xilinx are among the blockchains.

With corporate cash balances rising in recent years and deal volume as a percentage of market value still below the long-run average, recent activity may be just the beginning.

Europe is joining

Even the European IPO market, which is much smaller in size than the US one and less familiar with big first-day pops, is becoming bananas.

Among the 44 companies listed on European exchanges since Nov. 9 – the day news of a coronavirus vaccine that started a bull run in equity – average earnings are 16%, according to data compiled by Bloomberg. About 70% of them trade above their IPO price.

“Given higher equity valuations, IPOs are once again a viable exit route for sponsors,” said Darrell Uden, ECM’s global co-head of RBC Capital Markets.

Credit rebound

In a world of debt that generates nearly $ 18 trillion, investors have been forced to gorge on risky corporate bonds at record valuations.

In the US, yields on junk bonds have fallen well below levels that high-grade lenders could issue earlier this year.

Even Carnival Corporation, a fallen angel cruise ship operator, has steadily cut funding premiums this year. The pile of negatively generating corporate debt is now more than $ 3-trillion.

Emerging markets

Naturally, it is boom times for emerging market nations to sell more than $ 730bn in dollar and euro bonds in 2020, more than in any previous year.

Even with political turmoil, Peru sold the lowest-ever-yielding century bonds from a developing government in the economy. Ivory Coast priced euro-denominated debt with yields lower than 2019, despite its participation in a G-20 debt relief initiative and an ongoing program of the International Monetary Fund.

Back of Bitcoin

To diehards, Bitcoin’s more than 200% surge in 2020 on a wave of new currencies shows that crypto time has come. For many on Wall Street, it’s just the latest sign of irrational exuberance.

“We regard him and other cryptocurrencies as ‘digital tulips.’ We have no way to appreciate them, ”Yardeni Research analysts including Ed Yardeni wrote in a note. “We view Bitcoin’s price action as a speculative excess measure.”

Its volatility is a hard pill to swallow for most but people like JPMorgan and Nomura have noted plenty of interest, from family offices to trend-following sizes.

The virtual currency is surfing a wave of speculation for long-lived assets, from solar energy to Tesla shares, as investors seek a stake in tomorrow’s technology – damning valuations.