Stock market FOMO is making a comeback, as a rapid S&P 500 rebound over the past 10 sessions, resulting in a 7.2% increase over two weeks, marks the most robust stretch this year. Investors are now optimistic about the longevity of this rally, evidenced by a surge in allocations to U.S. stock funds and a reduction in trades designed for turbulent market conditions. The Cboe Volatility Index (VIX), or "fear gauge," has steadily declined, indicating a shift away from protective contracts as traders anticipate either a tranquil market or sustained gains.
Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management, notes that investors are positioning themselves for a potential year-end rally. Even cautious investors, like Ren, are reassessing their strategies in light of the market's recent advance. Some have adopted bullish positions tied to the S&P 500, utilizing options to capitalize on potential year-end gains, with activity in such options reaching record levels in November.
The market's turnaround can be attributed to a dual boost from Washington, where the Treasury's smaller-than-expected increase in longer-term debt auctions and the Federal Reserve's indication of no further interest rate hikes this year positively impacted both stocks and bonds. Despite recent bond market volatility, the S&P 500 has seen a 15% gain in 2023, and the Nasdaq Composite is up by 32%.
As the year-end approaches, investors are eager to see the latest inflation data, with the consumer-price index and producer-price index figures set to be released. Contrary to earlier doomsday forecasts for the economy, the market's performance has defied expectations. Portfolio managers like Charles Shriver, overseeing substantial assets, express confidence in the ongoing rise of stocks and seek opportunities to increase equity exposure.
Data reveals substantial inflows into U.S. stock exchange-traded and mutual funds, marking one of the largest fall hauls. Additionally, bearish bets against the S&P 500 and Nasdaq have decreased significantly, reaching their lowest levels in months. Individual investors are increasingly bullish, with a survey indicating a sharp rise in those expecting share prices to rise over the next six months.
Despite varying economic predictions, some optimistic voices, such as Goldman Sachs economist Jan Hatzius, highlight the better-than-expected performance of the U.S. economy, foreseeing a continued decline in inflation. Investors are adjusting their strategies, abandoning trades that profit from potential stock market declines, particularly in major players like Apple, Microsoft, Alphabet, Amazon.com, Nvidia, Tesla, and Meta Platforms.
Dev Kantesaria of Valley Forge Capital Management, managing around $3 billion in assets, reflects the sentiment that if interest rates have peaked, favorable times lie ahead for stocks. Holding minimal cash and fully invested in stocks, Kantesaria emphasizes the importance of optimism for successful equity investors, even in the face of cautious economic and market predictions.
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