|
Macquarie built a measure of equity market sentiment – the FOMO Meter – based on seven data points including asset manager exposure, individual investor sentiment and the number of S&P 500 stocks trading above their 200-day moving average.
The FOMO Meter ranges from 1.5 (FOMO) to -3 (Fear) and currently 1.21.
“When initial sentiment is this high, US stock returns tend to be below average in the following year, while ASX returns could be slightly negative,” says Macquarie.
“Sentiment could stay near the current level if the cycle keeps accelerating, or if the Fed does cut rates … Within the next year, we are more likely to see weaker sentiment as FOMO fades, and this would likely present a better time to buy risk.”
It’s pretty hard to deny the fact that most indicators are pretty overbought – But as is always the case, things can get even more extreme before something eventually breaks. (Or rather – When you decide to FOMO in – It breaks)
While the path of least resistance remains higher, here are my favourite data points and commentary from the Macquarie note:
- Sentiment drives the market: “If you look at the correlation of returns and sentiment, it is currently around 80%. The correlation has also been elevated since 2016 … hence that a sentiment indicator should add value to an investors' process.”
- Current sentiment suggests low returns over next year: With the FOMO Meter at 1.21 and based on past returns, the S&P 500 is expected to deliver a below average return over the next year. As a contrast, the FOMO Meter fell to a low of -1.86 in late 2022 and rose nearly 22% over the next 12 months.
- Defensives to outperform: “With the FOMO metre at 1.21, it is more likely that defensive sectors outperform cyclicals over the next 12-months.”
- The winning sectors: “If you look at the ASX sector return correlations to equity sentiment, the Technology, Media and Discretionary sectors have the higher correlation … In contrast, more defensive sectors like Utilities, Telecom and Health Care have the lowest correlations, and more likely to outperform in periods where sentiment weakens.”
|
|---|
