"Afraid to Miss the Rally" The 'FOMO' Dominating the US Stock Market

Amid widespread forecasts that the U.S. stock market will underperform this year due to economic recession and banking sector crises, the 'FOMO (Fear Of Missing Out)' sentiment has emerged as a key variable. Investors who experienced the FOMO syndrome?initially plummeting and then sharply rebounding during the early stages of the COVID-19 pandemic?are continuing their buying spree, which is expected to act as a driving force for the stock market rebound.

On the 7th (local time), the Wall Street Journal (WSJ) reported that despite investors turning to safe havens like government bonds amid high interest rates and credit risks, the FOMO sentiment?fear of missing out on bargain buying opportunities as the market might rebound?is also dominating the U.S. stock market. Investors are highly anticipating that the U.S. Federal Reserve (Fed) may shift toward easing monetary tightening within the year, but recession fears and liquidity crises among regional banks are acting as negative factors increasing market uncertainty. Eric Crittenden, Chief Financial Officer (CFO) of U.S. investment firm Stanpoint, pointed out, "The U.S. stock market is facing an 'unprecedented' complex crisis of high interest rates, recession, and banking panic, but no one has the options to effectively respond to this crisis."

Investors are focusing on positive factors rather than the unprecedented crisis. The S&P 500 index is projected to rise 7.7% for the year, supported by better-than-expected earnings and consumer recovery. Strong earnings from big tech companies, including market leader Apple’s surprise first-quarter results, are raising earnings expectations for large-cap stocks for the remaining quarters of the year. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street’s fear gauge, has recently dropped to its lowest level since 2021, encouraging stock market investments, WSJ evaluated.

Last week’s unexpectedly strong U.S. April employment data eased concerns about a hard landing for the U.S. economy. If the three economic indicators to be released this week from the 10th to 12th?the U.S. April Consumer Price Index, Producer Price Index, and University of Michigan Consumer Sentiment Index?confirm inflation slowdown and improved consumer sentiment, it is expected to provide grounds supporting a rise in the U.S. stock market.

Jerome Powell, Fed Chair. [Photo by Yonhap News]

The fact that small-cap stocks have started to rebound following the banking crisis triggered by the Silicon Valley Bank (SVB) collapse is also cited as a factor boosting investor sentiment. The Russell 2000 index, composed of U.S. small and mid-cap stocks, fell 6.4% since the banking crisis began on March 8, while the S&P 500 index rose 3.6% during the same period. Ann Milletti, Head of Active Investment Strategy at North Carolina-based asset management firm Allspring Global Investments, noted, "Small caps tend to outperform when inflation declines," adding, "Although the banking crisis is still ongoing, the market is positioning itself toward positive factors rather than negative ones."

However, pessimism about the U.S. stock market is also significant. Large-cap U.S. stocks are already considered overvalued, and if the recession deepens, these stocks could be the first to collapse. According to financial data provider FactSet, the current price-to-earnings ratio of S&P 500 companies based on expected earnings over the next year is 17.8 times, slightly exceeding the recent 10-year average of 17.3.

The fact that institutional investors are offloading U.S. stocks also supports this assessment. Warren Buffett’s Berkshire Hathaway recently disclosed in its earnings report that it sold $13.3 billion (approximately 18 trillion KRW) worth of stocks held in the first quarter and made almost no investments in the U.S. stock market. During this period, Berkshire Hathaway liquidated a significant portion of its stock investments, resulting in cash and cash equivalents reaching $130.6 billion (approximately 173 trillion KRW) at the end of the first quarter, the highest since the end of 2021. Foreign media interpreted this as a signal that "Buffett is not attracted to the volatile stock market." Charlie Munger, Vice Chairman of Berkshire Hathaway, also recently remarked in a media interview, "The shadow of Fed rate hikes and economic slowdown has begun to be felt," and advised, "Expectations for stock returns should be lowered."

This content was produced with the assistance of AI translation services.