This year has seen a dash for trash, with the most speculative risk assets leading the way higher. Is that a reason to be sceptical of the market rally?

Almost anything that was slaughtered in 2022 has soared in 2023. Cathie Wood’s Ark Innovation exchange-traded fund, which largely consists of unprofitable technology stocks, enjoyed its biggest-ever monthly gain in January. Goldman Sachs’s index of unprofitable tech stocks is up more than 20 per cent. Tesla shares have gained more than 65 per cent. Meme stocks such as GameStop and AMC are on the rise again, spiking 25 and 45 per cent, respectively. Bitcoin enjoyed its best month since October 2021, soaring 40 per cent. Even dogecoin, the joke cryptocurrency, gained more than 30 per cent in January.

Unsurprisingly, many are calling this a junk rally, noted Credit Suisse strategist Patrick Palfrey last week. Palfrey is cautious, although his own data suggests there’s nothing inherently negative about a junk rally. He notes this kind of performance pattern is often seen in the aftermath of a crisis or recession, pointing to similarly strong junk rallies in January 2001; in November 2002 and April 2003; in April and May 2009; and in November 2020.

January 2001 was a bad time to buy, but four of the other instances (November 2002, April 2003, April-May 2009) represented early-stage bull markets. November 2020 was also a good time to buy, with stocks going on to soar in 2021. This time may well be different, but January’s so-called dash for trash isn’t in itself a cause for investor alarm.