The S&P's relentless rise since its March low-point has more than erased any losses since the outbreak of COVID. But many segments of the economy are still in the tank, leading some to ask: has the stock market become unhinged from reality? And if so, when will it all come crashing down?
What are some warning signs?
- Shorts against the S&P are well above their pre-COVID levels.
- Volatility, as measured by VIX, is double its February low.
- Money fund assets are at all-time highs, signalling lots of cash waiting on the sidelines.
To make matters more murky, more than 180 S&P 500 companies have pulled their earnings guidance
in the lead-up to earnings season.
This has led to wild stock swings recently, both up and down, as companies like FedEx exceeded expectations and Nike missed targets — both after pulling their guidance.And don't forget RobinHood
The slick trading app — not available in Canada — has attracted swarms of new amateur day-traders who may or may not have a clue what they're doing.
For every dollar in the average RobinHood account, an astounding 25,840 options contracts are traded... about 10x the velocity done by TD Ameritrade account holders.
You might think the wild swings of options trading is a replacement for shuttered casinos and sports betting, and you might be right about that. But we also wonder how much a flood of new amateur money into the markets is driving prices.+++
The bubble might not just be local either... there are growing concerns
about China's frothy stock market too.