If you have been around a teenager or Millennial at all, you may recognize the FOMO acronym as the “Fear of Missing Out”. It is used in their youthful vernacular to express the anxiety of not being where the fun is taking place. It also could be a useful description of the late phase of a long term secular bull market. More about that in a moment – but first a quick update.
After experiencing a rather swift correction in the 4th quarter last year, due to trade issues, slowing global growth data, an inverted yield curve and political wrangling, markets bounced back in the first quarter of 2019 almost just as quickly. The month of May was actually the first down month of the year as many will notice the pullback in their portfolio values for the month. May’s decline was an extension of the same trade tariff concerns with the added element of Mexico now being in the President’s sights. However, in schizophrenic fashion, markets have bounced back rather quickly so far in June so clearly it is safe to say volatility is in full bloom. In the short run it appears investors are trying to handicap what the President’s next tweet will be as well as evaluate mixed economic data. Investors have gone from selling stocks when bad news is released, to buying stocks on the same news because it means perhaps the Fed may cut interest rates if things get too weak. In the Bizarro World of financial markets, sometimes bad news is good news and trying to outguess this is like guessing how many potholes are on I-440 – it changes daily!
In my opinion, the bigger picture is about the longer term secular bull market that began in 2009, which still may have room to run – albeit after normal pullbacks and pauses. If you look at a chart of the S&P 500 over the past year (see below) you can see a market that has traded in a relative range. The markets exhibited similar trading patterns in 2011 and 2015. Of course, past performance is no guarantee of the future and the market index is not necessarily indicative of everyone’s results, but these periods of weakness/consolidation can be beneficial as they allow asset prices to drift sideways while the economy can catch up – thus increasing the chances that the longer term market trend may continue without overheating.
Which brings me to the term ”FOMO” referenced earlier. Sentiment among investors is relatively pessimistic. A recent survey of investors by the AAII showed just 24% of respondents were bullish on stocks (compared with the historical average of 38%) – while 40% were bearish (compared to 30% historically). In addition, during May, stock mutual funds and ETF’s saw their largest 4-week outflows in 17 years according to Investment Company Institute. Folks, these are metrics that are generally associated more closely to a market bottom than a top. I’m not claiming stocks will soar but anecdotally, I can tell you that during 1999 and 2007 (years prior to a major market peaks and falls), investors were not this pessimistic – in fact they were downright euphoric! Why? Because eventually, those pessimistic investors finally threw in the towel and bought stocks because they feared missing out on the rally and thus had FOMO. Many feel this behavior led to the ultimate bubble – a phenomenon that in my opinion, we have not seen yet in this market cycle.
So while I fully expect more market corrections and consolidation in the short run, I would be surprised to see it morph into something deeply sinister like 2008.
As always, we appreciate your business and urge you to share this email with anyone you feel may benefit. We are grateful for all the wonderful referrals you have provided over the years. Until next month, save more, spend less and enjoy life…
David Adams can be reached at David.W.Adams@RaymondJames.com
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