FOMO is a No-No | The Investors Edge

By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review: Rotation Underway

The overall stock market has continued to grind higher, finishing out an impressive first quarter of 2024.

Most investors have associated the recent rally with the largest technology stocks and AI-related names like the chipmaker NVIDIA.  And those stocks have turned in an impressive performance during the bull market that started in late 2022.

Nevertheless, more recently, other sectors and companies have begun to show relative outperformance.

In fact, technology is actually in 7th place out of 11 sectors so far year-to-date.  It is down 1% in the past week even with the broader market higher, and former market darling Apple is down more than 10% so far this year.  Another Magnificent Seven member Tesla is down close to 30% thus far in 2024.

Meanwhile, energy stocks have been on a tear, up roughly 13% in the first quarter.  Other laggards from 2023 like small company stocks have recently started to show signs of life as well.

It remains to be seen whether this is just a temporary quarter-end reallocation by money managers, or if a more durable shift in market dynamics is underway.  We’re leaning toward the latter.

Featured Insight: FOMO is a No-No

The post-Covid stock market has been driven by a lot of FOMO – that is, the Fear Of Missing Out.

We had the whole meme stock saga, remember most by the meteoric rise in GameStop shares due to a coordinated short squeeze.  Crypto went through several boom and bust cycles, and remember NFTs?  I’m sure anyone who bought those would like to forget.

A flood of cheap (or in some cases free) money, social media, and high frequency trading platforms have all come together to drive epic price moves in various financial instruments.

Nevertheless, most of these types of situations that are driven by price momentum and a fear of missing out by those that think they’re being left behind while everyone else gets rich ultimately end in a trail of tears.  Don’t get sucked in to the FOMO.

Looking Ahead: Employment Report Incoming

The month of April is about to begin, and the first Friday of every month is always with widely anticipated nonfarm payrolls report.

Job growth has been in somewhat of a “goldilocks” range – good enough to signal the economy is on stable footing, but not too strong as to signal accelerating inflation.

Now that the Fed has essentially promised three rate cuts this year, there could be some modest risk that a strong report will call into question whether or not they can deliver on that promise.  Especially given some recent inflation data that has been a bit hotter than expected.

On the flip side, the consensus of economists and market participants now believes that the economy is on a good trajectory, and prior calls for recession have all but completely faded away.  Therefore, a weaker-than-expected jobs report could cause a reassessment of those outlooks, and create some near-term market volatility.  I suppose we should hope for more goldilocks next Friday.

Copyright 2024 The Business Journal, Youngstown, Ohio.