(Bloomberg) — The buy-everything mania that greeted Donald Trump’s election is cooling in the tried-and-tested world of stocks and corporate credit. Yet on Wall Street’s speculative fringes, the risk-taking frenzy is only getting bigger by the day.
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Heavy trading — and big price moves — in everything from crypto to leveraged exchange-traded funds was the story in a week where swings in the S&P 500 and Nasdaq 100 finally started to abate.
Ground zero for the casino crowd: The $140 billion complex of amped-up exchange-traded funds tracking the likes of Big Tech stocks, Michael Saylor’s Bitcoin proxy MicroStrategy Inc., and more. Gamblers are flocking to vehicles that boost gains and losses across indexes and companies including the Magnificent Seven darlings. Single-name leveraged products have been trading $86 billion this week — a record.
It’s the latest frothy chapter in a marquee year for risky assets, courtesy of the booming economy and Trump’s election pledges — no matter how long the Federal Reserve is taking to cut interest rates.
The gains have fattened brokerage accounts just in time for the holiday shopping season. Yet at this rate, the gambling spirits are running high enough to give market pros pause.
“This euphoria is rampant speculation on par with the 2000 peak,” said Michael O’Rourke, chief market strategist at JonesTrading. “These levels of momentum and turnover are hard to maintain for an extended period of time.”
Gyrations are slowing down in the less-exotic assets. While the S&P 500 gained at a healthy clip — 1.7% this week — it was the smallest move since before election day. Daily changes in 10-year Treasury yields have averaged less than 2 basis points since Nov. 14, compared with more than 7 basis points in the two weeks prior.
No corner of the juiced-up ETF world saw more action this week than funds centered on MicroStrategy, the software firm Saylor has transformed into what amounts to a pure-play bet on Bitcoin. Two leveraged funds based on the company saw a combined $420 million inflow amid a 24% surge for the underlying stock this week.
The popularity of the two funds has led some market-observers to point to a leveraged-loop buying frenzy. It goes like this: Investor demand for the ETFs pushes up the price of MicroStrategy, allowing it to raise more money and further prop up Bitcoin itself. The world’s biggest digital token is up more than 40% in November alone and climbed each day this week to get within a few hundred dollars of $100,000.
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