Speculative bets are cool again and Reddit's army of retail investors is partying like it's 2021

Happy Friday eve, team. Phil Rosen here. Did you catch yesterday's Fed minutes release?

It looks like central bank officials unanimously agreed that the last rate hike of 25 basis points was the appropriate size, and that slowing down the pace would "better allow them to assess the economy's progress."

But several participants would have also backed a half-point hike, the minutes showed.

That tells us we should be taking the Fed at its word: The inflation battle isn't over.

Jerome Powell has said as much on several occasions, and yesterday St. Louis Fed President James Bullard maintained that the economy can still withstand more aggressive policy.

And yet, despite the dip this week, markets right now are brimming with bullishness — and Reddit-loving retail investors are partying like it's 2021.

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1. The everyday traders that powered the meme-stock boom of two years ago are back in force, flying in the face of Jerome Powell's hawkishness and helping fuel the stock rally of the last seven weeks.

Data from Vanda Research shows retail investors have been spending a record $1.5 billion a day on stocks this year, a total reversal from last year's brutal sell-off.

Remember, at the start of the pandemic, government stimulus and near-zero interest rates gave retail investors the perfect opportunity to lay down speculative bets.

That set the stage for rallies in meme-stocks like GameStop, AMC, and Bed Bath & Beyond, which ultimately led to a high-profile battle with hedge funds trying to short those companies.

Fast forward to 2023 and the retail cohort is back — with a $1.8 trillion stash ready to deploy.

That number balloons to nearly $5 trillion, Fundstrat's Tom Lee said, if you include the roughly $3 trillion parked in money market funds held by institutional investors.

Gene Goldman, chief investment officer for Cetera Investment Management, told me that the spike in enthusiasm comes from hopes that the economy can avoid a recession, even though a downturn is still in the cards.

"With all of these headwinds, retail investors are jumping in on maybe some ill-conceived optimism," Goldman said.

Currently, the New York Fed's Recession Probabilities Model puts the odds of a recession at 57%, which is the highest it's been in roughly four decades.

But economic data be damned, retail investors are still piling into the riskiest corners of the market.

Crypto, EV stocks, and growth picks — last year's biggest losers — have broken through as early favorites. Even triple-digit surges in SPAC stocks have made a comeback.

"There is an old adage 'don't fight the Fed,' but this behavior is not just fighting but also taunting the Fed with crypto, meme stocks, and unprofitable companies responding best to Fed communications," JPMorgan wrote in a note to clients.

If 2023 shapes up to be even vaguely similar to last year, there's a chance investors will regret sticking their necks out again as the Fed stays vigilant longer than expected.

Read the full story on how retail investors are reviving the pandemic playbook — and why the Fed could end up crushing the market anyway.

Are you surprised by the heavy retail trader activity to start the year? Tweet me (@philrosenn) or email me (prosen@insider.com) to let me know.

In other news:

2. US stock futures rise early Thursday, as investors continue to pick over the latest Fed minutes. Meanwhile, tech stocks are still enjoying a boost after Nvidia's earnings beat expectations. Here are the latest market moves.

3. Earnings on deck: Alibaba, Intuit, and more, all reporting.

4. Meet a top-5% fund manager who says he's becoming increasingly optimistic about the economy. Jeff Muhlenkamp's outlook on stocks has come a long way since he stashed nearly half his portfolio in cash last summer. These are his six favorite stocks to buy now.

5. Wall Street's top analysts don't think the bear market is over. Yet investors have dismissed warnings from policymakers and pushed stocks higher to start the year. Here's how JPMorgan, Morgan Stanley, and Bank of America are sounding the alarm for a reckoning.

6. The boss of a $2.2 billion investment fund thinks US stocks could climb for some time more but that they're still set to crash 50% eventually. Phillip Toews of Toews Asset Management told Insider that the hope for a Fed pivot is an "imaginary best friend." After decades of spending and global debt, he's expecting frothy markets to compress.

7. Stock market volatility is surging again as markets fear bad inflation news. Concerns about the trajectory of economic data and the Fed have reemerged — and DataTrek suggests it could be time to buy stocks once Wall Street's fear gauge surges again.

8. A fund manager recommended buying into this batch of dividend stocks to collect consistent cash payments. Regular returns will be key in a high-inflation environment, said Mike Morey, who outperformed 95% of his peers in 2022. See the list of 16 names.

9. This real-estate investor said a perfect storm of problems put him in a $27,000 hole. Everything became more expensive in a short stretch of months, Marky Suazo said. He shared what spoiled his BRRRR strategy — and how he plans to adjust for future deals.

10. Berkshire Hathaway's portfolio has a handful of stocks that are winning big to start 2023. Some of the largest stakes in Warren Buffett's company include Apple, Bank of America, and Kraft Heinz. But none of those are among the five best-performing stocks so far this year.

Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email prosen@insider.com.

Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.