‘FOMO’ effect: Will the stock market party continue after a January of highs?

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European markets tense this Friday Ibex 35, CAC 40, DAX…-, after a frantic week of central banks and corporate results. “We consider normal and, even healthy, the fact that these markets take a breather, something that we do not think should surprise much, especially after the great performance they have been maintaining since the beginning of the year,” they explain in Link Securities.

“It seems that investors are positioning themselves in the securities that last year were most severely punished, and they were mainly because their valuations were excessive considering the continuous downward revision suffered by their business expectations, for fear of missing the boat, what is known as Fear of Missing Out (FOMO) , dangerous strategy where there are, since many times chasing the market up ends up bringing dislikes, “add these analysts.

Ben Laidler, global markets strategist at multi-asset investment platform eToro, is equally sentimental: “The ‘fear of missing out’ sustains markets; The January rise of the S&P 500 It was the second best in the last three decades.”

“The ‘January effect’ usually generates positive returns, led by the losers of the previous year. This has now been reinforced by the cocktail of less bad fundamentals, lower bond yields and skewed positioning,” Laidler explains.

“This ‘fear of missing out’ has more scope if the fundamentals of lower inflation and resilient profits continue to pay off. Recent fund inflows have been scarce in the context of large net outflows of $180 billion in equities in 000 and $2022 billion in money market inflows,” highlights the exterto of eToro, who recalls that the latest survey of BAML fund managers shows large underweights in US equities and high levels of cash.

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According to Laidler, global equities had one of the best starts to the year in their history, defying consensus. “Consecutive downward years are very rare, and January usually sets the tone for the year, as both history and fundamentals are on their side.”

“The reopening of China and the fall in natural gas prices have made fundamentals less bad. This was all that was needed with pessimism and such high cash levels. As long as these continue to be supported, the pace of yields will inevitably slow down and fundamental bumps loom.”

“2023 will be a year of transition into the next bull market. Stay positive, but be prepared for lower yields and more divergences between assets.”

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