The bulls seem to have returned with vigor, or perhaps they never really left. Nvidia’s exceptional performance has not only propelled its stock to new heights but has also sparked a wave of optimism across global stock markets, from Tokyo to Paris. Even the S&P 500 appears poised to participate in the rally on Thursday, as investors exhibit a fear of missing out (FOMO).
Looking ahead, some may wonder if this day will mark the market’s peak. However, Evercore ISI strategist Julian Emanuel advises against fighting the FOMO mentality prevalent in the market right now.
Emanuel points to options markets as a key indicator of FOMO, noting historically flat skew where implied volatility remains the same for all options. Specifically, he observes that call options, which grant the right to buy an asset, have become more expensive compared to puts, which provide the right to sell. This shift was observed prior to a significant selloff in growth stocks in 2021-22.
Additionally, Emanuel highlights the rarity of the S&P 500’s rise alongside an increase in volatility, a phenomenon that has occurred only twice in the past decade. These observations suggest a cautious approach may be warranted despite the current market exuberance.
The market has experienced rapid 10% pullbacks in the past due to significant events, such as the Nasdaq Whale Unmasking event of 2020 and the “Volmageddon” event of 2018. Concerns have been mounting about a potential recurrence of the latter.
Despite these concerns, both Nvidia (NVDA) and the broader market have shown remarkable resilience in the face of stronger inflation data and the recent release of the Federal Open Market Committee (FOMC) minutes, which highlighted the risks of cutting rates too quickly, according to the strategist.
This resilience underscores the operation of the fear of missing out (FOMO) mentality, which can drive stock prices higher even as valuations become stretched. The S&P 500’s trailing twelve-month price-to-earnings ratio reaching 22 times, a level historically associated with flat one-year forward returns, has not deterred investors from chasing stocks higher. Momentum can persist despite concerns about overvaluation, and FOMO remains a dominant force in the market for the time being.
In light of these dynamics, Evercore has outlined its preferences, favoring defensive sectors such as communications services, consumer staples, and healthcare. These sectors have historically outperformed between the Fed’s last rate hike and its first rate cut. Conversely, they are avoiding economically sensitive sectors like consumer discretionary, industrials, and materials, all of which have underperformed year-to-date.
The Market
Hold onto your hats as the Nasdaq Composite surges nearly 2 percentage points, while the S&P 500 signals a new record high following Nvidia’s impressive results. Treasury yields remain flat, while the dollar is on a downward trajectory.
In Asia, Japan’s Nikkei 225 index closed at its highest level since 1989, indicating strong bullish sentiment in the region. Similarly, European markets are poised for their highest finish in two years, reflecting the widespread optimism sweeping across global stock exchanges.
The market is abuzz with activity today:
Nvidia is seeing double-digit gains following its impressive performance, surpassing top-line forecasts by $2 billion and sparking discussions about an AI “tipping point.” Similar gains are observed in shares of Super Micro, Arm Holdings, Advanced Micro Devices, and Marvell Technology.
Disappointing results from EV makers Rivian and Lucid are weighing heavily on their shares, while solar equipment group SunRun is also experiencing a decline after falling short on results.
BuzzFeed is surging by 80% after announcing the sale of pop-culture site Complex and further layoffs, signaling a positive response from investors.
Moderna is on the rise after reporting a surprise quarterly profit, while Planet Fitness is also climbing following an earnings beat despite a mixed outlook.
Alphabet-owned Google has halted its AI image generation tool due to criticism regarding its portrayal of racial minorities.
Weekly jobless claims have dipped by 12,000 to 201,000 in the week ending February 17th. Upcoming releases include the S&P flash U.S. services and manufacturing purchasing managers indexes at 9:45 a.m., followed by existing home sales at 10 a.m. Additionally, a batch of Fed officials, including Vice Chair Philip Jefferson, Philly President Patrick Harker, Fed Governor Lisa Cook, Minneapolis President Neel Kashkari, and Fed Governor Christopher Waller, are scheduled to speak throughout the day.