FX Evolution: Smart Money Slumps as Dumb Money FOMOS Stocks?
Traders can get a sense of how markets are performing by following money inflows and outflows. Big order flows signal the moves of big money – institutions and funds. Typically, these players seek to avoid moving the market too much while accumulating or selling a position.
At the other end of the spectrum are retail investors. Their small investments can cumulatively add up. But it can also be a sign that the big money has already been made.
When retail inflows surge after a stock or index has already moved higher, it may be a sign of FOMO, or fear of missing out. That makes inflows and outflows a reasonable gauge of market sentiment, and when things may have gotten too heated.
With retail investors coming into the market after heading higher since the start of the year, it may be prudent to get cautious.
That’s confirmed by the mixed data coming out this earnings season. Markets have risen in part for expectations of a strong season. And while some companies have fared well, others have not, leading to mixed results.
If earnings come in stronger, markets may still head higher. However, mixed results suggest more caution. Other macro events, such as ongoing increases in interest rates at central banks around the globe, also suggest further caution.