“FOMO” is now a fixture of daily market banter.
That’s unfortunate, not because it suggests sundry sheep are marching towards the proverbial slaughter, but because I don’t like verbalizing the acronym. It sounds silly as it rolls off the tongue, much like “YOLO,” which I suppose is apt — the two are related, after all.
“YOLO” is how you excuse bad decisions when you’re overcome with “FOMO.” I’m scared of missing the rally, so I’ll buy into it even though I know I shouldn’t — you only live once! Three months later you’re sitting with a 50% loss in a Cathie Wood ETF and a $150,000 jpeg of a cartoon monkey wearing a turtleneck.
Anyway, the persistence of the tech-led rally in 2023 has some sidelined investors and under-positioned funds tired of fighting. They’re “so bored of bears,” as BofA’s Michael Hartnett put it. That raises the specter of additional FOMO-driven gains.
With that in mind, it’s tempting to suggest the biggest net spec short in more than a decade could be rally fodder.
If you take that back (and back and back) you’ll discover that it’s really uncommon for short positioning to look that stretched.
According to Bloomberg blogger Simon White, it’s probably a false optic, though. “There is no big hedge fund short in US equities to boost equity prices,” he wrote Monday. “This supposed big short does not match positioning in the Nasdaq and Dow Jones [and] it would be odd if speculators were only short the S&P,” he went on. “Instead, the data is [likely] being affected by the index-arbitrage behavior of hedge funds.”
I won’t endeavor to weigh in on the veracity of that assessment, but I will say, unequivocally, that spec positioning can’t always be “taken at face value,” and is often “not as [it] first seems,” as White put it. That applies in general — so, not just to equities.
However, that doesn’t mean there’s no scope for more FOMO. Indeed, White suggested there is. He cited the A.I. frenzy and the May vintage of Hartnett’s fund manager survey, where panelists’ US equity allocation was two standard deviations below the average.
“We will see whether the current burst of innovation with Large Language Models suffers from the Amara effect [but] either way the rally is being driven by A.I.-related stocks,” White wrote. “Throw in a large investor underweight, with BoA’s Fund Manager Survey showing the most negative net percent of managers who are overweight US equities, then even without the mythical ‘hedge-fund short,’ markets have the propensity to keep heading higher for the time being.”
Of course, the same fund manager poll showed respondents believe “long big tech” is the most crowded trade on the planet, and let’s face it, “long big tech” just means “long US tech” with China’s giants still hobbled by Xi Jinping’s “common prosperity” push and related headwinds.
The Nasdaq 100 is enjoying its best start to a calendar year in a quarter century, and despite the rally, calls are en vogue. As White put it, “price chasing, not short-covering,” can drive stocks higher.
