Jumping the Shark
#132: This Market Smells Familiar.
Shades of 2021
Stop me if you’ve heard this before.
The U.S. stock market continues its unfettered march higher. But in some corners, a new wind of confidence has lifted shares large and small to fantastic heights. Valuations that once took months to sway now double or triple in a week. Assets that most embody a new golden future — cryptocurrencies, quantum computing, space exploration, electric mobility — that have outshined the rest. Traders trample each other at the options window, setting record volumes with their levered bets.
Familiar indeed.
Of course, this is an accurate description of today’s market. Printers are preparing SPX 6,000 hats, with the index up 26% so far this year. The small cap Russell 2000 has climbed out of its deep trough, finally reclaiming all of its post-COVID losses. Tech is taking a breather but the NDX still holds 20,000. The post-election pump has lifted most boats, but the real action is happening way out on the risk-curve.
Like investors’ sudden realization, roughly six weeks ago, that quantum computers are the future. The leading horse IonQ, Inc. (IONQ) first walked, so the tag-alongs D-Wave Quantum (QBTS) and Quantum Computing Inc. (QUBT) could run! (If you’re worried you missed it, take solace knowing this “realization” seems to happen quite suddenly every 18 months or so).
Meanwhile, as Bitcoin flirts with $100,000, investors have decided that rather than buying the coin directly, they would rather pay Michael Saylor $1.00 for $0.40 worth of Bitcoin. MicroStrategy (MSTR) continues to squeeze Saylor’s Quotient, completing the largest at-the-market equity offering in history.
The rationality of buying MSTR today rests on the assumption of perpetual irrationality. Drink it in; the circular logic of the bubble, the perpetual motion machine, the algorithmic stablecoin — it’s never wrong until it is.
And don’t let me escape as an unwavering rationalist. The “speculative” rocket and satellite longs I listed last month in The New Space Age — Rocket Lab (RKLB), BlackSky (BKSY), SPIR Global (SPIR), Planet Labs (PL) — have quiet suddenly found new appreciation in the market. Meanwhile the eVTOL manufacturers profiled in Hype and Hot Air have soared in just last several days on no meaningful news.
I stand by my analyses, but the convenient market timing goes to show that a fresh blended daiquiri of narrative and momentum can even get the Last Bear tipsy.
The POINT is not that any one of these examples indicate market froth. Nor, that valuations can’t adjust both rapidly and rationally. Rather, it is the peculiar coincidence that should catch your eye.
What a remarkable chance that these disparate and speculative assets have decided to suddenly march in sync? An even greater surprise, if you rewind to 2021, you find many of these exact same companies, tokens, and figments soaring together — not just in the same year, but the same weeks.
Despite consistent SPX gains throughout 2021, we saw distinct pushes of momentum in the speculative realm, most notably the February 2021 surge leading to the Gamestop squeeze, and the November 2021 finale before the COVID bubble popped. This past month certainly feels reminiscent.
But the truth is, there is nothing coincidental about it. It’s merely a product of our leverage du jour...