Trader’s Insight: “Weaponized FOMO” Takes a Breather
Investors who pile into the stock market often consider the fact that stocks tend to be the best-performing assets over the long term. Once the stock market has taken off, however, some traders simply pile in.
This is a phenomenon known as FOMO – or fear of missing out. Most investors played right into the FOMO trend with the stock market’s Santa Claus rally in 2023. That seasonal trend is now weakening.
That may not mean a market correction. But it does mean that stocks will likely need to come off of overbought levels. A quick drop and gradual resumption of the uptrend could cause that to happen.
Several reasons could explain why this is happening. First, with the start of a new year, professional investors will rebalance. That means taking some profits on winners, and reinvesting in underperforming positions.
And the past few months have seen a drop in bond yields. That’s because investors expect a sharp drop in interest rates this year. While the Fed is looking at three rate cuts for a 0.75 percent drop, some investors see rates moving far lower.
That’s getting priced into the bond market already. From a yield of 5 percent in October, the 10-year U.S. Treasury bond is now under 3.9 percent.
This market breather may last a few days or weeks. But chances are likely that January will be an up month for stocks overall. A more sizeable decline is more likely around March or April based on seasonal trends.