On Thursday, the Fed noted in its latest financial stability report that as the US economy recovers from the COVID-19 epidemic, investor interest is growing, and the possibility of booming stock markets, social media-driven retail holdings and hedge funds pose increasing risks, Zhitong Financial APP has learned.

The report warns against "special purpose buyout companies" (SPAC) and retail group stocks, saying that the rise of such hot stocks and SPAC reflects the high risk appetite of stock market investors.

The new problem recently, the report points out, is that the stock market rally can be reversed quickly, and social media has proved to be able to push up share prices and push them down just as quickly. The recent explosion of Archegos Capital positions has led to large losses for banks, which also reflects the concern about its risk management.

The report said asset prices could fall, particularly endangering highly leveraged life insurers and hedge funds; a run on money market funds; and financial market pressures could interact with the potential risks of a new digital payment system.

The Fed also called for "structural repair" of money market funds, which faced a wave of redemptions at the start of the epidemic and had to be included in the central bank's emergency lending program.

The report also pointed out that if Europe fails to control the virus and the government plan does not have enough support to offset the negative impact, some important European financial institutions may incur "significant credit losses". And in turn affect the US economy and financial system. Pressure from emerging markets could also spread to the US.

Corporate profits have been high so far this year, but stock prices have risen faster than the improvement in earnings prospects. This has pushed the price-to-earnings ratio to a higher level and raised concerns among policy makers about the "yield-seeking" behaviour of investors and traders.

The stock market is not the only part of the market that shows a bubble. The risk premium for low-rated issuers in the corporate bond market has returned to pre-crisis levels. In its November report, the Fed warned that the US could still face a wave of debt defaults and a "sharp fall" in asset prices because of the epidemic and recession. But so far, the facts have not proved this point.