Traders Are Risking It All on Bets That Market Boom Will Last

economictimes.indiatimes.com:

Industrial shares are on a tear, junk-bond spreads are narrowing, quants are ramping up Treasury shorts and everyone is piling into stocks. What once was a posture of skepticism among investors has morphed into something approaching euphoria. Cash and hedges are out, replaced by demand for everything from small caps to meme stocks.

Fueling the surge is data showing the US economy is thriving amid mounting evidence the Federal Reserve is beating inflation. All the optimism has sent the S&P 500 to the brink of its sixth advance in seven months and pushed prices in the Nasdaq 100 to almost 35 times profit. It’s manna for bulls — even as it leaves them with precious little wiggle room should anything in the economy or monetary policy not unfold as hoped.

“It’s dangerous and consensus, but it’s late July, so who feels like fighting it?” said Peter Tchir, head of macro strategy at Academy Securities. “We are now at stage where people feel obligated to fully commit capital. Hawkish Fed not an excuse right now, and claiming recession is hard to justify as well.”Less Demand For Tech Stock Hedges | There is relatively low demand for bearish versus bullish options for QQQ Economic data keeps defying bearish predictions — everything from gross domestic product to consumer confidence and hiring has beaten forecasts.

Reports Friday showed the employment cost index had its slowest advance since 2021 in the second quarter, while the Fed’s preferred inflation gauge posted the smallest increase in more than two years. Good news on the economy is sucking more and more investors into risky assets. A steady expansion in speculative spirits has pushed equity positioning to the highest level since January 2022.