Meme-Stock Mania: Is Market Brewing A Perfect Storm?

Risk-on investments are the most popular they have been since late 2021—right before stocks entered the longest bear market in decades.

The MEME ETF—tied to the Solactive Roundhill Meme Stock Index—has risen 67% this year to its highest level since May 2022.

Retail traders are all-in, as bullish sentiment hits its highest level since 2021, according to surveys by the American Association of Individual Investors.

Investors are showing less fear in the market as the put-call ratio, a measure of fear in the options market, falls to its lowest level since January 2022, according to Cboe Global Markets data. The Cboe Volatility Index, also known as Wall Street's fear gauge, is trading below 14. Anything below 20 is associated with little demand for insurance.

It isn't just the exuberance that is giving some cause for concern. Higher borrowing costs threaten to slow down the economy, choking off credit for businesses and making it harder for companies and households to get loans. Over the past year or so, rates on auto loans and mortgages have jumped around 3 percentage points. Interest on credit cards is up to 22% from 16%, Federal Reserve data show.