Goldman Sachs predicts that the S&P 500 could reach 6,000 by the end of the year, with the possibility of reaching 6,270 if the trend continues similar to past election years.
In the context of financial markets, two acronyms have become central to describing investor dynamics: FOMO and TINA. The "Fear of Missing Out" (FOMO), or the fear of missing out on an opportunity, and "There Is No Alternative" (TINA), which expresses the lack of valid alternatives, have become key tools to explain the continued rise of US stocks.
FOMO has played a significant role in fueling the US stock rally of the past two years. The S&P 500 index, the main barometer of market performance, has recorded an incredible 47 all-time highs this year alone.
This momentum looks set to continue, as, for many investors, there is no alternative to US stocks for equity exposure, at least when looking at the strength of US economic data and corporate earnings.
The dynamic between FOMO and TINA has created a symbiotic relationship that, rather than weakening, seems to be growing stronger. Investors, eager to stay on top of this winning trend, continue to pour money into US stocks, further fueling the markets’ rise.
The S&P 500 and Nasdaq outperformed the world’s major stock markets, up more than 20% on the year. Japan’s Nikkei gained 16%, China’s blue chips and Asian ex-Japan stocks rose 14%, while European stocks in the eurozone rose 10%. The UK’s FTSE 100 index, meanwhile, was down 8%.
Wall Street’s lead was largely driven by big tech, with the FAANG index up 34%. Even excluding tech giants, the equally weighted S&P 500 has gained 15% year-to-date, still outperforming most global markets.
While these disproportionate returns may suggest that U.S. stocks are overbought, economic fundamentals continue to support this trend. The Atlanta Federal Reserve’s GDPNow model projects annualized GDP growth of 3.4% for the third quarter, the highest since the model began estimating in July.
U.S. companies continue to show a solid outlook. While third-quarter earnings growth is forecast to be around 5%, that figure is expected to rise significantly in the coming quarters, stabilizing around 15% by 2025, according to estimates from LSEG I/B/E/S. It is no surprise, then, that Goldman Sachs analysts expect the S&P 500 to hit 6,000 by the end of the year, with the potential to reach 6,270 if the trend is similar to past election years.
Meanwhile, other major global economies are facing significant challenges. Germany, Europe’s largest economy, is at risk of a second consecutive annual contraction, while China, the world’s second-largest economy, is grappling with a housing crisis and potential deflation. Even Japan, despite a relatively stable economy, appears reluctant to raise interest rates significantly to avoid destabilizing the economy.
Is the US stock market becoming a mirror image of the bond market? Both are extremely liquid markets, with the safest stocks and dwarf their rivals in size. Wall Street has become a money machine for investors, especially tech giants with massive cash reserves and credit ratings comparable to the federal government.
It is no surprise that the share of U.S. stocks in the global market capitalization has risen to a record 72%. However, such concentration cannot last forever, and many investors are questioning the sustainability of investing in U.S. stocks at current levels.
It is true that U.S. stocks are among the most expensive in developed markets, according to Robert Shiller’s Cyclically Adjusted Price-to-Earnings (CAPE) report. They are more expensive than they have been in the past two decades relative to global stocks. However, investors do not appear ready to reallocate their capital significantly in the near term. As Goldman Sachs has noted, many institutional investors feel "compelled" into the market because of the fear of materially underperforming (FOMU).
While it is possible that the US stock market will adjust, those who bet against it risk underperforming and losing customers long before that happens.
FOMO and TINA continue to drive US stock markets to new highs, but their influence may run out of steam sooner rather than later. Investors would be wise to carefully consider the risks of an increasingly concentrated and expensive market. However, for now, it appears that many are not ready to change course just yet.
Original article published on Money.it Italy 2024-10-26 06:29:00. Original title: FOMO, TINA, FOMU: è inevitabile rimanere investiti sull’S&P 500?
