Investor sentiment is extremely bullish and Investors seem overconfident. You hear that young workers putting all of their retirement money in Bitcoin. But 30-year-olds putting all their eggs in one speculative basket or believing anyone who thinks differently does not know anything about the financial markets, including those with decades more experience and successful track records, doesn’t happen at the beginning of rallies. It happens near the end. Bitcoin investors are between “thrill” and “euphoria.” But it’s not just in Bitcoin where sentiment is through the roof. Special purpose acquisition companies (SPACs), tech stocks and heavily shorted stocks have all caught investors’ attention, and those investors have driven the stocks higher.
The COVID-19 vaccines are giving people hope that they can begin to resume their normal lives in the very near future. This optimism will surely spill over into the economy. Low interest rates make cheap money available, and stimulus packages mean free money is coming to many people. With spring around the corner, it makes sense that people are feeling hopeful, perhaps for the first time in a year. And all this is reflected in their bullishness.
We have seen this movie several times. We know how it ends. Sentiment today feels awfully similar to sentiment in 1999. Watch sentiment closely. If it gets any more extreme, and “the taxi driver recommends you stocks to buy”, it is the time to get very cautious and go into defence.
Sven Franssen