While the cyclical returns inUS stocks are still extreme,our FOMO Meter has fallenback from Euphoric levels.The latest reading of ourFOMO Meter is 0.85.This is down from a peak of1.59 on March 29.A reading of 0.85 is stillrelatively positive, with only13% of reading being higher.The FOMO Meter also fell to-0.5 in Oct 2023 when themarket feared higher yields.But with more confidencein the cycle and the Fed putback in play if data doesweaken, we think sentimentmay not weaken as much asit did in October 2023
The cooling in sentiment inApril is mainly due to a fall inactive manager exposure to63% (from 104%) and a dropin the individual investors'bull-bear spread to +4.3%(from 27.6% on Mar 29).There are also half as manystocks above their 200-day(33% vs 69% at peak), whilevolatility has increased.Sentiment can continue tocool, as Asset Managers inparticular are still very longand could eventually respondto higher yields.
ASX forward returns improving, but still likely below average
When the FOMO Meterwas over 1.0, the data isfairly clear that ASX forwardreturns are likely to be low oreven slightly negative.With sentiment falling below1.0, forward returns are stillbelow average but not as badas when initial sentiment wasalready high.We think we are perhaps halfway through the correction,but now is the time to startthinking about what to add,as the outlook for the cycle isstill positive and the Fed putreduced downside risks
