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Investing.com — Inventory market euphoria is at ranges not seen because the tech bubble, suggesting buyers go for some warning, in line with Barclays (LON:BARC)’ newly launched Fairness Euphoria Indicator.
“Curiously, with many drawing parallels between the AI revolution and the 2000s Tech bubble, the EEI is essentially the most stretched since then, warranting some warning,” Barclays analysts famous of their Volatility Outlook 2025 report.
The Fairness Euphoria Indicator, which goals to seize the breadth and energy of ‘animal spirits’ amongst shares utilizing derivatives circulation insights, has averaged round 7% with peaks of north of 10%.
Peaks aren’t a daily prevalence because it “solely occurs lower than 20% of the time that no less than 10% of all shares are in exuberant territory,” the analysts stated. In the course of the Dotcom period and the Meme inventory frenzy in 2020-21, Barclays’ Fairness Euphoria Indicator flagged over exuberance, however following the latest run in markets, the indicator is as soon as once more signaling that shares are in ‘euphoric territory.’
The indicator’s present elevated studying suggests buyers could also be getting overly exuberant, doubtlessly setting the stage for elevated market volatility.
Market volatility for this 12 months is prone to be formed by contrasting forces.Whereas pro-growth insurance policies together with the subsequent step within the AI cycle, deregulation, and potential tax/fee cuts may drive markets larger, inflationary pressures from tariffs, immigration insurance policies, and financial dangers may create headwinds.
Excessive positioning in markets additionally provides to the potential for wild swings, the report steered. With the bullish view in the direction of U.S. equities and disdain for Europe is firmly embedded within the consensus, this crowded positioning “creates the potential for exacerbated volatility throughout market stress,” it added.
