FOMO-Greed is Good
Few things breed confidence in investors like an 8-month winning streak. Where do you stand? Were you “nervous” in October 2022 near the stock market lows due to “inflation” concerns? When the S&P500 was around 3600? Were you still waiting in February or April this year with the S&P 500 recovering to 4200 due “debt ceiling worries? Now that those “events” have passed by, has“FOMO”, Fear of Missing Out now set in? Are you now feeling better and confident now that the cash S&P500 is above 4200, 4300 near 4400? Like many late to the rally strategists? Are you now seeing and reading all the daily stories about “AI”, artificial intelligence” being the next big investment wave? Do you now feel like you have to do something to your portfolio now? You have to buy something sexy and growthy because we are back to the good old days? Are you once again convinced that “greed is good”?
I’m Chris Perras, Chief Investment Officer with Oak Harvest Financial Group and this is our investment team’s mid-week release when we examine a news item, headline, or story making the rounds from publicly available sources and ask, “Is it News or Noise?” for your money. This week I give my thoughts on FOMO, the fear of missing out. And even though I’m a capitalist at heart, and I love the 1987 movie “Wall Steet”, contrary to Gordon Gecko’s speech in the movie, greed is NOT, I repeat NOT always good.
https://www.youtube.com/watch?v=VVxYOQS6ggk
Until recently, I received pushback for almost 10 months from almost everyone I talked too about the markets arguing against our idea that volatility peaked back in mid-2022 and was set to decline. That spot volatility and the vix index, which I hate as a indicator but many quote, while it was trading between 30-32 back then, was headed back to 14 or lower into 2q 2023, and this would cause the markets to rally to at least 4300. That was our first half outlook back last December.
Well, both forecasts have now been exceeded slightly and those same individuals who argued against a lower vol trend are now out publicly spouting the idea that “we are in a new volatility regime change”, too lower volatility. They are now out touting a story of “greed is good”.
Here’s a chart of the S&P500 since the market’s lows last October. When many were busy forecasting a recession or worse. Is it now a good time to panic and buy stocks back if you were shaken out of the markets in 2022?
We do not believe so. Once again, I must take the other side of this argument about volatility and the markets for the next 2 to 4 months. Investors, volatility is most likely set to rise from here not decline, and that would create a headwind for equities this summer. While we do not use the spot Vix index as a forecasting tool, we do look to forward tradeable insurance markets as we have previously discussed. Our tools, the same ones that said multiple times over the last few years when there were twists and turns coming, now says that its time to pull in those bull horns for a while, go slowly, and wait for some great opportunities coming farther down the pipeline this summer. Forward insurance markets say that while future volatility will remain “subdued”, that we are due for a 2 to 4 month or so rise in volatility and a pullback in stocks. Yes, just as everyone gets confident that stocks are breaking out and many late to the party strategists revise up their targets for the markets.
This forecast should come as welcome news to long-term investors. Why? Because the data, provided by LPL group, says the average forward 1,3-, and 6-month gain in the S&P500, while more volatile over the comparable time periods, is almost double the return of the S&P 500 when the spot vix is in its highest quintile range versus when the spot vix is subdued under 13.25. Yes, uncomfortable or not, investors should crave higher volatility to give them lower and better prices to enter stocks.
So, as we head into July 4th weekend and the heat of summer, and with the S&P 500 up close to 20% since the mid-June 2022 first summer low around 3675, front page stories about the current hot investment idea, “AI”, chat gpt, and large language model technology are virtually everywhere a growth investor looks. Should you listen to these soothsayers, who incorrectly missed the 800 point rally the last 8 months and rush in finally? Our team says no. These stories are not news. Take a deep breath and do not let FOMO and greed control your investment actions this summer.
Are you trying to meet your needs or your greed’s in retirement? Give us a call here at Oak Harvest and schedule an initial consultation with an Oak Harvest Advisor. We will sit down with you and help you and your family do the math to figure out if you will be able to meet your retirement goals and needs.
