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Investing.com -- Goldman Sachs said in a note Friday that its Speculative Trading Indicator has surged to historic levels, reaching its highest reading outside of the dot-com and pandemic-era bubbles.
“Our Speculative Trading Indicator has increased sharply during the last few months,” Goldman Sachs wrote, noting the current level is now the highest on record apart from 1998–2001 and 2020–2021.
The rise is being driven by “elevated recent share of trading volumes in unprofitable stocks, penny stocks, and stocks with elevated EV/sales multiples.”
Furthermore, the firm highlighted that the most actively traded names include several of the “Mag 7” stocks, alongside companies in digital assets and quantum computing.
Goldman Sachs said the spike in speculative trading mirrors “other signs of increased risk appetite within the equity market.”
These include a jump in call option volumes, which recently made up 61% of total option activity, the highest share since 2021, and a resurgence in IPO and SPAC issuance.
First-day IPO returns are said to have surged, while $9 billion of SPAC issuance in the second quarter marked the busiest three-month period since early 2022.
Goldman added that a proprietary basket of stocks popular with retail traders (GSXURFAV) has gained 50% since April, underscoring the market’s speculative tone.
While this activity could “signal near-term upside risk for the broad equity market,” Goldman Sachs also warned it “increases the risk of an eventual downturn.”
They explained that historically, spikes in speculative trading have preceded strong 3-, 6-, and 12-month S&P 500 returns, but also below-average returns on a two-year horizon.