Wall Street’s massive rebound since early April has been mainly fueled by a retail-driven mania marked by aggressive speculation as traders place risky bets on short-term price gains, according to analysts at Goldman Sachs.
In a note published Friday, Goldman reported that its Speculative Trading Indicator has surged to its highest level on record, excluding the dot-com bubble and the pandemic-era mania of 2020 and 2021.
The frenzy is being driven by “elevated recent share trading volumes in unprofitable stocks, penny stocks, and stocks with elevated EV/sales multiples,” the investment bank noted.
Much of this speculative activity is concentrated in the Magnificent 7 stocks and in high-concept sectors like quantum computing, which, despite their long-term promise, show little current financial performance.
Goldman’s proprietary basket of popular retail stocks has jumped 50% since April — a move that historically precedes strong market gains over the next three to 12 months, but weaker returns over a two-year horizon.
As reporter Walter Bloomberg observed, this pattern signals “near-term upside but long-term risk.”
Goldman’s note echoes retail dip-buying trends flagged by Investors Observer, with 2025 on track to become one of the strongest years for individual investors on record.
In the first half of the year alone, retail traders poured $155 billion into U.S. stocks and ETFs. Inflows into individual names have also been robust, with companies like Palantir (PLTR) and Tesla (TSLA) drawing billions in retail investments.
Do valuations even matter in a bull market?
While the S&P 500 is flashing multiple overvaluation signals — from the CAPE ratio to price-to-sales metrics — these indicators don’t necessarily carry much weight in the short term.
As State Street’s chief investment strategist, Michael Arone, pointed out in his 2025 outlook, “valuations are a poor prediction of short-term price performance.”
In other words, “expensive investments can, and often do, get more expensive,” he said.
Arone emphasized that current economic and financial conditions still support elevated valuations, with S&P 500 companies poised to deliver stronger earnings.
In June, financial research firm FactSet projected that S&P 500 earnings would grow roughly 9% in the second quarter. This comes on the heels of a robust 12.9% earnings gain in the first quarter of 2025, marking the second consecutive quarter of double-digit growth.
Investors are growing more confident that the Federal Reserve will cut interest rates later this year, with Goldman Sachs now projecting the move will come sooner than previously anticipated.
Since markets are forward-looking, these rate-cut expectations are already being priced into current valuations.
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