The FOMO rally: Fear to miss something helps to boost rising markets

A "fear of missing something" has hit the global markets, raised everything from stocks to cryptocurrencies on record heights and forced even convinced bears to throw the towel.

US shares are in the epicenter of the global rush on shares that almost doubled the MSCI all-world stock index since the low point of the Coronavirus crisis in March 2020-one of the strongest runs for global shares in history.

The S&P 500 The Wall Street sealed the longest series of record highs since 1964 before it retired slightly, according to Bank of America. Meanwhile, highly speculative digital assets such as Bitcoin, Ethereum and "Meme coins" such as Shiba Inu shot up and brought the crypto market value of less than $ 500 billion to around $ 3 trillion last year.

"The market has become a video game," said Peter van Dooijewert, Managing Director of MAN Group, the world's largest listed hedge fund manager. "It feels like Candy Crush ."

Analysts and investors say that an important driver of the rally was the flood of economic measures by global central banks in order to stabilize the global economy last year at the peak of pandemic and to ensure strong economic relaxation.

This has meant that many low -risk systems such as high -quality government bonds offer only small returns and in many cases have strongly negative returns if one takes into account the increased global inflation.

Analysts and investors say that the market upturn was charged by a boom in retail, which began when many people were confronted with severe social restrictions last year, but continued after the reopening of the economies. And the signs of euphoria multiply.

On November 5, a record value of $ 2.6 trillion-derivatives that enable investors to complete betting on or against shares with borrowing-in the USA, changed the owner, according to Goldman Sachs, the highest trading volume ever recorded. The option trade volume is now around 50 percent more active in nominal dollar values than the entire actual stock trade, the investment bank estimates.

Most of the traded options are so -called "calls", derivatives that enable investors to respond to aggressive bets on rising wealth prices. According to Nomura, the total trade volume of the US calls is now back on the three-decades highs from the beginning of 2021. This has brought the ratio of calls to puts that offer insurance against stock exchange returns since June 2000, shortly before the dotcom bubble bursting.

"Options have more volume than real stocks. It has an enormous impact on the market," said a manager of a large trading company. "Options are naturally more speculative and lifted. I don't think that it can go on forever."

private investors were an important factor for the increase in the option trade, and a Nomura Wolf-Korb from US shares popular with Daytraders has now increased about 150 percent this year, compared to 24 percent of the S&P 500. "There are obvious signs of foam," said Raghuram Rajan, former governor of the Reserve Bank of India, at the beginning of this week on a Conference.

Some analysts are also nervous. Charlie McElligott, a strategist for stocks at Nomura, said that at the moment he feels a little "Yikes" when he watches the markets. "It seems that 'Peak Fomo' penetrates speculative assets," he wrote to his customers this week.

Russell Clark by Russell Clark Investment Management emphasized how difficult this is an environment for the dwindling group of bear -in investors, and finally threw the towel and closed his hedge fund of the same name after he had tried to support the market rally of the past decade.

According to EPFR, $ 865 billion new money was pumped into equity funds worldwide this year. This is almost the triple of the previous overall annual record and the central inflows of more than two decades.

Some analysts say that the rally could become even more violent in the coming month. Mcelligott pointed out that the US corporate purchases would be resumed after the forced blackout shortly before the quarterly profits were published and that the medium inflows in the last section of the year tend to be strong.

combined. These factors could drive the markets even higher by 2022, he argued. "It is the game book for melting together at the end of the year, from which I think people are 'forced to play'," he wrote.

Barclays strategist Emmanuel Cau agrees that the market will be higher at short notice than the other way around. "The market is running hot, but the fundamental data continues to support a further increase in shares," he wrote. "Fomo prevails, but the overall position is not stretched."

Nonetheless, the frenzy unsettles many investors who are worried that the powerful but largely justified recovery from the shock of the coronavirus is now becoming something more dangerous.

"Everything seems crazy, there are bubbles here, bubbles, everywhere," said Erik Knutzen, Chief Investment Officer at Neuberger Berman. "It has become a cliché, but we are really in new territory, very unusual terrain."