The Social Mood Precedence
Contrary to common belief, consumer optimism doesn’t drive financial markets. Instead, it is the social mood that sets the stage for consumer and investor behavior. The ebbs and flows of bullish or bearish sentiments dictate the direction of the economy and stock market.
Reading the Signs in European Markets
Examining the European landscape, we observe a trend of exuberance marking major stock market peaks. One such indicator is the record-breaking sales of 10,112 Lamborghini cars in 2023. The three-year waitlist for the electric V12 Revuelto symbolizes a peak in economic prosperity.
Another alarming signal is the resurgence of the short volatility trade, a technique tied to stock volatility. Investors are pouring billions into strategies dependent on sustained equity market stability, a strategy that echoes the euphoria before the 2018 market volatility.
Historical Context: The Echoes of Volatility
Reflecting on the market chaos of February 5, 2018, when the VIX spiked, causing immense losses, offers a cautionary tale. The recurrence of similar risky practices on a larger scale today, totaling a staggering $64 billion, highlights the potential dangers of a market relying heavily on consistent behavior.
The parallels drawn between previous market peaks and the current exuberance warn of a bumpy road ahead if the signs of investor and consumer behavior are disregarded.