Putting the wave of speculation into context

Extreme speculative movements in the prices of a handful of stocks and of silver have generated a lot of headlines over the past month. But those surges have not been reflected in the performance of risky assets more generally, many of which have taken a breather after their strong run late last year. Chart 1 shows how the prices of a few heavily shorted stocks in the US, many of which have been targeted by speculators, have rocketed. But the prices of those with little outstanding short interest – which make up the vast majority, and virtually all the largest stocks by market capitalisation – are up only marginally this year on average. Concerns about the continued spread of coronavirus and the threat of new strains of the virus have probably held them back. This apparent disconnect between the developments in a few corners of the market and the overall picture adds to our sense that we are not currently in the late stages of a bubble in risky assets generally – something we explored in more detail here, here and here. Regardless of what happens to the prices of some of the online forums’ favourite “meme stocks” in the coming months, we expect broader indices of risky assets to make more headway as it eventually becomes clearer that widespread vaccine rollout is making a major difference in limiting the spread of coronavirus.