Welcome back FOMO.
That’s Fear of Missing Out.
We’ve seen this one before.
With stocks up, and showing signs of moving higher, investors who sought safety on the sidelines find they can’t take the pain anymore of watching other investors and traders make money.
With the Standard & Poor’s up nearly 17% from its June low, money is moving back into stocks.
For example, retail investors, who fled stocks in June after the Bear Market had inflicted heavy losses on their favorite stocks, have rushed back to buy. Purchases from individual investors jumped 62% in the week that ended Tuesday, according to JPMorgan Chase. (The dangerous pattern of a Bear market is that it drives investors to sell at the bottom and then to buy at what looks like a top. Will it be different this time?)
Professional money managers show the same pattern. Trend-following traders, who started the year short stocks and bonds, have exited $70 billion in stock shorts over the past month. They are now positive on stocks, according to Nomura Holdings.
One of the characteristics of a FOMO market is that the money returning to stocks winds up disproportionately chasing momentum. And looking for stocks that are relatively easy to move up big time on momentum buying.
Last Friday, August 12, for example, Microsoft (MSFT) gained 1.70% on the day. Apple (AAPL) was up 2.14% at the close. Ford (F) popped 2.21%. Chipotle Mexican Grill (CGM) gained 2.00%
All those are great one-day gains for these big cap stocks.
But those gains were dwarfed by those at small-cap momentum favorites. On Friday, everybody loved electric vehicle charging stocks. ChargePoint (CHPT), which I recently sold (I note) was up 13.06%. EVgo (EVGO), which I decided to hold, was higher by 14.23% Tritium DCFC (DCFC), a recent buy the future for pennies Penny Stock pick, gained 16.57%.
That buying, as well as gains in hydrogen economy stocks, makes sense to me after the passage of the environmental package known as the Inflation Reduction Act of 2022. Plug Power (PLUG), for example, continued its recent run with a gain of 6.49% and Norwegian green hydrogen producer was up 8.50%.
But some of the big winners were hard to predict. Why are LIDAR companies suddenly so hot? Luminar Technologies (LAZR) gained 9.14% Or the big pop in amusement park operator Six Flags (SIX), up 13.87%
I think the FOMO market is a continuation of the Bear Market rally that has ruled stocks since July. It’s–probably–a sign that the Bear Market rally is heading toward the extremes that precede the end of the rally and the resumption of the Bear.
But as I’ve noted before, predicting how long a Bear Market–or a FOMO market–will run is extremely difficult. I’d say the odds are that this one will run into September where it will confront–but perhaps survive–the Federal Reserve’s interest rate increase at the September 22 Fed meeting.
I would continue to use this stage of the Bear Market rally as an opportunity to sell stocks–although as I noted in my post “What to sell, when to sell in the Bear Market rally” I wouldn’t be in a rush right now to sell the stocks with the most upside potential in this stage of the rally.
More thoughts and specific advice on dealing with the extreme emotions of a FOMO market on Tuesday.
