This week I want to talk about animal spirits and the year 2020. This was when I found an interest in the stock market and had no prior knowledge whatsoever. I was a freshman playing college basketball at the time, and 100% remember hearing about Gamestop every other day + seeing it on social media wondering, what is going on!? What if we were to go back to a time like that, where sentiment is off the charts and shorts are being squeezed left and right? I think this is possible, and could be coming sooner than expected.

The S&P 500

Now, I know monetary policy was different then compared to today. We were in the middle of a pandemic and tons of money was being pumped into the economy. With that being said, I want to look at the “V” shaped recovery from Covid, and the V recovery from the recent tariff scare. It took $SPY ( ▼ 0.02% ) 148 days to make a new all-time high during Covid from the bottom. Currently we’re on day 47. Compared to 2020, we would still have another 100 days until new highs are made. With the S&P now less than 3% from all-time highs, can you imagine if it took another 100 days? FinTwit would explode!

Similarities to 2020

When thinking of 2020, the words frenzy, hysteria, and mania all come to mind. These 3 ratios represent just that. You have the $IPO ( ▲ 0.85% ) Index and $ARKK ( ▲ 4.48% ) both very close to completing reversal patterns relative to the broader market in $RSP ( ▲ 0.01% ) . These are two very speculative ETFs. If they begin to outperform the market, then that means investors are heavily risk-on. You also have micro-caps close to completing a base relative to small-caps. I consider micro-caps to be one of the most risk-on signals in the market. These are extremely small companies with most of them being unprofitable. Outperformance from micros shows investors are looking for the most beta as possible.

We’ve Already Seen Glimpses

Not every bull market is the same. Different areas of the market caught wind back then, and different areas are catching wind now. I’d argue the extreme moves we’ve seen this year in quantum and nuclear stocks, just shows that investors are ready to go back to an environment like 2020. I created a composite with what I consider to be some of the most important meme stocks. We are hovering right near those highs, and a breakout will just help further solidify my thesis. I also made one for meme coins, because why not!

Conclusion

I believe that sooner than later, we could be entering a time similar to 2020. Tariffs, wars between countries, and uncertainty may fuel this, as many investors get short due to headlines. These will be the same people who will be caught offsides if we do enter such an environment, as they’ll get squeezed out of their shorts. What do you think about all of this? Feel free to reach out and let me know your thoughts. As always, thanks for reading, and blessings to all!

Bonus Chart