By Mitesh
The resurgence of FOMO (Fear of Missing Out) in the stock market is unmistakable, as the S&P 500 has experienced a rapid rebound in nine out of the last 10 sessions, marking a 7.2% surge over the past two weeks—the most robust stretch of the year. Investors are now increasingly optimistic about the sustainability of this rally.
Some market participants have redirected their investments into U.S. stock-tracking funds, abandoning positions that would typically profit during market turbulence. Many have also reduced bearish bets against the S&P 500 and the Nasdaq-100, wary of potential further gains catching them off guard.
The Cboe Volatility Index (VIX), often referred to as the “fear gauge” on Wall Street, has notably decreased from its October highs and continued its decline for eight consecutive sessions.
This trend indicates a shift away from protective contracts signaling expectations for market calm or an absence of major downturns.
Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management, noted that investors are positioning themselves for a potential year-end rally, prompting a reconsideration of their cautious stances earlier in the year.
Ren, for instance, has adopted some bullish options tied to the S&P 500, anticipating further gains through the end of the year.
The recent market turnaround can be attributed to a dual boost from Washington.
The Treasury’s decision to increase the size of longer-term debt auctions by a smaller margin than anticipated, coupled with the Federal Reserve’s signal of a probable pause in interest rate hikes for the remainder of the year, has provided support to both stocks and bonds.
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Government bond yields, a source of recent volatility, dropped after surpassing 5% for the first time in 16 years in October, bolstering confidence among stock bulls. As of now, the S&P 500 boasts a 15% gain for 2023, and the Nasdaq Composite has surged 32%, with its best day since May occurring recently.
Looking ahead, investors are closely monitoring the upcoming inflation data, with the consumer-price index and producer-price index figures set to be released on Tuesday and Wednesday.
Despite initial doomsday predictions for the economy in 2023, the current market sentiment and performance suggest a more optimistic outlook.
Charles Shriver, a portfolio manager at T. Rowe Price, has shifted a significant portion of his portfolios into equities, expecting stocks to continue their upward trajectory.
In the week concluding on November 8, exchange-traded funds and mutual funds in the United States attracted approximately $4.2 billion, indicating one of the most substantial inflows observed this autumn.
Hedge funds and other money managers have scaled back their bearish bets against the S&P 500 to the lowest level since June 2022, while bets against the Nasdaq are at their lowest since March. Individual investors are also expressing growing bullish sentiment, with the percentage expecting share prices to rise over the next six months jumping to 43%.
Goldman Sachs economist Jan Hatzius, known for his optimistic outlook, acknowledges that the U.S. economy has outperformed expectations, with inflation expected to continue decreasing over the next year. As yields decline, investors are stepping back from trades that would profit from a downturn in the market’s key players, such as Apple, Microsoft, Alphabet, Amazon.com, Nvidia, Tesla, and Meta Platforms.
Dev Kantesaria, founder of Valley Forge Capital Management, emphasizes the importance of optimism in equity investing and notes that his bullish stance has paid off.
Holding nearly no cash in his portfolio, Kantesaria is fully invested in stocks, confident in the potential for favorable times ahead if current peak rates are sustained.
In summary, the recent market dynamics suggest a renewed sense of optimism among investors, fueled by positive economic indicators, supportive government actions, and a growing belief in a sustained year-end rally.
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