Many of you may know this slang phrase. FOMO means the Fear Of Missing Out. While this phrase is more often tied to social media and to millennials feeling like they are missing out on something more exciting than what they are doing, I’m hearing a lot of it regarding people sitting in far too much cash as the stock market rallies. They fear they are missing out on the rally, but they are too decision impaired to put their money to work for fear that the market will drop again.
Many of these investors rely exclusively on their emotional well being to invest their money. They invest (buy) when they feel comfortable and confident that the markets are going to go up and get out (sell) when they don’t feel comfortable about the broad-based markets. As you can see from the illustration below, this often leads to buying high, selling low, and then leaving your money in cash until you have confidence that the markets are a safe place to invest and make money again. Many of these FOMO investors sold out of their investments in December and have done nothing about putting this money back to work in the market.
We made the argument, throughout the fourth quarter, that the market pullback was completely sentiment driven. None of the market’s negative movement was based upon anything that had fundamentally changed. Companies were reporting record earnings, people were spending their money – which was driving our economy up, and there was no inflation to speak of during this time. We told our clients to ride out the storm. In early January we made the call to get your cash working for you in the stock market. We made the argument that the S&P 500 was undervalued, over-sold, sentiment was ugly (a good thing), and most of the time when investors overreacted in this way the S&P 500 rallied significantly.
What should you do now, if you were one of those investors that sold in December, and haven’t put your money back in the market?
- We are still in a secular bull market and should be in it for several years to come.
- Bull markets climb a wall of worry. In other words, there will always be a reason for you not to invest in the stock market if you look hard enough.
- While the markets are no longer undervalued or oversold, our economy looks very strong and corporate earnings are beating expectations.
- The breadth of the rally is very bullish. For the first time in 711 trading days, more than 90% of S&P 500 companies are now trading above their 50-day moving average. According to Bespoke Investment Group, the average return six months later is 8.95% for the eight other times this has happened since 2001.
- Meet with your Polaris Wealth Wealth Advisor to discuss the best way of getting your cash to work for you in this market.
While you may still be fearful of more stock market pullbacks to come, we feel that the good far outweighs the bad. Our economy is strong, corporate earnings are excellent, there is no unemployment, inflation is in check, and the global economy looks to be stabilizing. While no one can accurately predict the future, we would say that risks have subsided and there are ample opportunities for stock investors to experience above average returns.
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