In the ever-evolving landscape of investment psychology, the concept of FOMO, or “fear of missing out,” has become a widely recognized phenomenon, particularly in the era of social media. It encapsulates the anxiety individuals feel when they perceive others benefiting from opportunities they are not partaking in. However, Julie Biel, the chief market strategist at Kayne Anderson Rudnick, offers a unique perspective by introducing the notion of OMO—”OK missing out.” Biel’s sentiment reflects a cautious stance towards the current stock market rally, driven by apprehensions surrounding corporate earnings and the lofty valuations seen in the market.
The recent performance of stocks has been marked by turbulence, as evidenced by declines in both the S&P 500 index and the Dow Jones Industrial Average. These dips were triggered by a consumer inflation report that exceeded expectations, prompting concerns among investors. Despite these setbacks, valuations remain stretched, with the S&P 500 trading at more than 21 times its estimated earnings for 2024. This valuation surpasses its average over the past five and 10 years, signaling potential risks for investors.
Biel’s unease stems from the narrowness of the rally, indicating that such conditions could pose risks to investors. A narrow rally refers to a situation where only a select group of stocks or sectors are driving the market’s gains, while others lag behind. This lack of breadth in the market rally suggests that it may not be sustainable in the long term, as broader participation is typically seen as a healthier sign for the market.
Central to Biel’s concerns is the upcoming earnings season, during which companies will report their first-quarter earnings and provide guidance for the rest of the year. These reports will be closely scrutinized by investors, as they will offer insights into the underlying health of the economy and the prospects for corporate profitability. While some financial institutions, such as Wells Fargo and Citigroup, have already reported mixed results, others—including JPMorgan Chase, Goldman Sachs Group, and Bank of America—are slated to release earnings in the coming week.
Analysts anticipate modest profit growth for S&P 500 companies in the first quarter, driven primarily by the technology and healthcare sectors. However, earnings for companies in cyclical sectors may decline, highlighting the ongoing divergence in earnings performance across industries. Looking ahead, expectations for improved earnings in the second quarter and throughout 2024 hinge on the resilience of the U.S. economy and sustained consumer and corporate spending.
Despite the optimism surrounding earnings growth, concerns persist about the broader economic landscape, particularly with regard to inflationary pressures and the potential impact on consumer spending. As such, the upcoming earnings season represents a critical juncture for investors, who will be closely monitoring corporate performance and guidance for signs of economic strength or weakness.
In conclusion, while the stock market rally has buoyed investor sentiment, caution is warranted amid heightened volatility and uncertainty surrounding earnings and economic conditions. As companies prepare to report their financial results, the market’s reaction will provide valuable insights into the outlook for stocks in the face of evolving economic challenges. Investors must navigate these complexities with prudence and diligence to mitigate risks and capitalize on opportunities in the market.