Speculation Spike: S&P 500 at Risk

Investors Are Rushing Into Risky Stocks Again

The S&P 500 notched its 15th record high of the year on Thursday, with the Nasdaq also hitting a new peak — good news for bullish investors.

But there’s a catch: the rally has been fueled in part by another meme-stock frenzy, sparking concerns that markets could be nearing a blowout top.

Bronte Capital summed it up in its latest quarterly update:

“Garbage stocks have risen aggressively. This is an environment like early 2021, when the consensus rapidly became that you should buy frauds because they will squeeze higher. People seriously talked about fraud as an asset class.”

How frothy is the market? Goldman Sachs says speculation isn’t at extreme levels yet — but it’s getting close. Their Speculative Trading Indicator (STI), which tracks trading activity in unprofitable and penny stocks as well as high-multiple names, has surged in recent months.

While it remains below prior peaks from January 2000 and February 2021, the trajectory is worrying.

The STI’s rise echoes other signals of heightened risk appetite:

• Options boom: Call options now make up 61% of all option volume — the highest since 2021.
• IPO pops: First-day returns for IPOs have “ballooned.”
• SPAC revival: $9 billion in SPAC issuance in Q2 2025 marks the busiest quarter since early 2022.
• Short squeezes: Stocks heavily shorted have rallied over 60% since early April, rivaling runs seen in 1999-2000 and 2020-21.

Recent squeezes, such as those in Kohl’s (KSS) and Krispy Kreme (DNUT), highlight retail investors’ favorite strategy — piling into shorted names for explosive upside. Goldman’s basket of retail favorites closely tracks the STI.

Broader market backdrop

Interestingly, technicals still look supportive despite record highs: equity positioning remains neutral, median S&P 500 short interest is near its highest since 2019, and market breadth is unusually narrow.

Goldman’s takeaway: speculation can keep driving markets higher in the near term, but history warns of trouble down the road.

“During the last 35 years, other sharp increases in speculative trading activity have signaled above-average subsequent 3-, 6-, and 12-month S&P 500 returns, but returns typically faltered on a 24-month horizon,” the bank notes.