Even in a bear market, FOMO is a major force

Even in a bear market, FOMO is a major force

Sometimes Wall Street makes sense. Other times, it doesn’t. Thursday was the latter.

The big picture: Stocks rallied sharply, despite a worse-than-expected inflation report that all but ensured the Fed’s relentless rate-hiking would continue.

  • As we’ve written about all year, rate hikes have been the key driver of what, through Q3, has been the worst year for the stock market since 2002.
  • And the S&P 500 did, in fact, plunge after the inflation report, opening down 2%. However, it then boomeranged, closing up 2.6%.

Context: Yes, stocks go up and down all the time. But the size of the swing from the opening tick was highly unusual.

  • It was only the fifth time since 1993 that the S&P 500 opened down 2% only to close with a gain above 2%, data from stock market research firm Bespoke Investment Group shows.
  • Stocks that benefit from ongoing inflation and rising interest rates, like financials, oil drillers and chemical companies, led the market higher.

Between the lines: While the composition of the day’s winners could be construed to make a kind of sense, no traders that we talked to seem to view the rebound as fundamentally sound. They all think it was a classic bear market rally.

  • Bear market rallies are the brief, sharp increases that regularly happen, even as the market’s broad trajectory is lower.
  • You can still make a lot of money on a bear rally, though, especially if you spot it early, surf it well and jump off before it rolls over.
  • Steve Sosnick, chief strategist at Interactive Brokers, called Thursday’s move “an epic head-fake,” adding that fear of missing out — or FOMO — is still a major force, as traders are dying to get in early on a good bear market rally.

The bottom line: Some traders we spoke to thought stocks could put together a decent little rally before the shadow of the next rate hike — due on Nov. 2 — begins bumming the market out again.

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