Investor FOMO drives V-shaped economic rally

Over the next few weeks, we can expect financial markets to be driven considerably higher because of FOMO.

The Fear Of Missing Out.

This week global stocks registered significant gains, with the U.S. on Wednesday reporting total gains of 31% for the S&P 500 index since the market bottomed in March. The FTSE100 in London also closed at a seven-week high, mirroring upswings on European and Asia-Pacific indexes.

What we’re seeing now will likely become a strong recovery in global stock markets as investors look to the end of this year and into 2021. They are dismissing the predicted current poor economic data, which has already largely been priced in.

Optimism among investors has increased following reports of substantial progress in the development of coronavirus treatments, as well as central banks around the world continuing to implement and boost their stimulus packages, and as lockdown restrictions start to ease to revitalise economies.

As investor confidence rises, a V-shaped post-pandemic economic revival is now being priced in.

And as the markets move higher, we can expect that the uptick will become sharper because of that influential investor sentiment: FOMO.

Indeed, the Fear Of Missing Out will lead many investors, me included, to move off the sidelines.

With a recovery looming, they don’t want to miss out on the present value in the market long-term, which will push markets higher.

A clear illustration of this trend was the S&P 500 index recovering 60% of February and March losses by the closing bell on Wednesday.

Investors are aware that the closer we are to finding a coronavirus treatment, the more economies begin to reopen and as trillions from stimulus packages take effect, the more the rally will take hold. And these investors don’t want to miss out.

Of course, we don’t know what will happen day to day, but we can be sure that, ultimately, economies and people do adapt.

This is the reason, as we’ve seen throughout history, that over the longer-term, stock market performance is pretty predictable: they go up.

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