(Bloomberg) -- A five-day runup in Treasury yields finally tamped down the post-election fervor in big US stocks this week. Not so at the market’s speculative edges, where Bitcoin and its memed-up cousins keep testing the limits of speculative zeal.
As they have for more than a month, gambler spirits raged along the fringe, pushing Bitcoin back above $100,000, sending Michael Saylor’s MicroStrategy Inc. past $400 and igniting a rally in a crypto token called “fartcoin” that saw its market value swell above $700 million. The rally happened as Donald Trump went to the New York Stock Exchange and promised to “do something great with crypto” when president.
Gains like those underline the staying power of the day-trader set in a week when the major US equity benchmarks posted their smallest moves since Trump was voted back into office. The jump in US 10-year yields, which at 24 basis points was biggest of the year, did nothing to discourage speculators. Besides pumping up crypto, they continued to plow money into levered—up exchange-traded funds and anything to do with Elon Musk.
“It is just boredom and excess liquidity,” said Vincent Deluard, director for Global Macro at StoneX. With excitement from the election waning, “it’s more fun to inflate a bubble in meme coins, the best symbol of which is fartcoin, whose market cap is now greater than that of 50% of US-listed companies.”
Meme traders held fast amid a fairly dismal week for conventional risk taking that saw various longstanding trades come under pressure. A long-short Morgan Stanley basket tracking momentum stocks slid nearly 3.5% over the five days, its third-worst week this year. The Russell 2000 and an index of tech companies that have yet to generate profits both fell nearly 3%.
The S&P 500 snapped a three-week string of gains with a 0.6% drop. Breadth also deteriorated, with less than a half of the index’s constituents trading above their 50-day moving average. The biggest long-dated Treasuries ETF had its worst week this year, tumbling more than 4%.
But outside the more buttoned-up parts of the market, the trading frenzy is still going full bore. Bitcoin, which gave hints of weakness Tuesday when it dipped below $95,000, quickly righted itself to post a sixth straight weekly advance. Rallying alongside the largest digital asset was a panoply of more dubious meme tokens.
The dominance of little-guy investors in the market continues to assert itself. One proxy, the volume of trading done on off-exchange venues such as those run by equity wholesalers serving clients like Robinhood Markets Inc., has jumped to well above 50%, recently hitting a record.
Almost everything Elon Musk surged. Tesla Inc.’s shares added another 12%, bringing the increase in its market cap to more than $500 billion since the election. A closed-end fund called Destiny Tech100 Inc., which has soared more than 500% since the election in part due to exposure to Musk’s privately held SpaceX, also rose, pushing its market value to more than 10 times its stated net assets.
“The markets still have their animal spirits, but it’s getting more selective,” said Marvin Loh, senior macro strategist at State Street Global Markets. “Without an additional catalyst, the more esoteric names are more vulnerable.”
One sign of a stretched market: A gauge of risk-on positioning and sentiment kept by Goldman Sachs Group Inc., which plots flows to everything from equity futures to bullish stock options, just hit the highest level since 2018, with more than half its indicators at notably elevated levels. Similar readings have preceded a pullback.
“Our aggregate positioning and sentiment indicator has reached the 70th percentile despite macro data improving only marginally so far,” said Christian Mueller-Glissmann, head of asset allocation research at Goldman Sachs. “Historically a similarly elevated positioning and sentiment indicator pointed to a speed limit for equity returns.”
Wall Street has held off on big bets ahead of the Federal Reserve’s policy meeting next week, at which policymakers are expected to push through a quarter-point rate cut. The view isn’t unanimous, though: Deutsche Bank AG and BNP Paribas forecast no more Fed action this year. Monetary easing is also seen slowing next year by more than officials had projected three months ago, with a majority of economists predicting just three reductions in 2025.
Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, says that while a December rate cut is part of the risk-on narrative, it probably won’t be enough to keep the party going on its own.
“Unless Powell has a very dovish tone, I wouldn’t expect it to be a big near-term catalyst,” said Suzuki. “But it provides some downside support for markets.”
--With assistance from Lu Wang.
