After last week’s brief scare — to the tune of a 2% decline — the stock market has saddled back onto the bull with the major indices hitting new highs.
Last week, I referenced that while everyone was calling for a correction, measured as a 10% decline, every dip of just 2%-3% continued to be bought. We can bandy about the reasons; be it the Fed’s continuing liquidity injection, strong corporate earnings, and big monetary policy. However, the main drivers seemingly returned to FOMO (Fear of Missing Out).
The concept of FOMO came into being in 2014 when interest fell to near-zero rates. There was a hiccup in late 2018 when Jerome Powell laid out a course of ceasing quantitative easing (QE) and raising interest rates, leading to the “Taper Tantrum.” Afterward, Powell quickly backed off.
Currently, Powell has the cover of Covid to claim it’s premature to remove the interventionist policies such as buying mortgage-backed securities (MBS) or raising rates despite the strongest housing market in over 10 years and GDP and inflation growing at the highest rate in 30 years.
This has led to much money sloshing around looking for a home. For traditional and elderly investors, this financial repression forces them into equities. Hence, while there are substantial fundamental reasons for being bullish on stocks, there’s also a strong element of both FOMO and also TINA (There Is No Alternative).
For younger and less averse people, this has manifested itself in the cryptocurrency and NFT market. I have no doubt that blockchain and some form of crypto is the future with blue sky potential. However, the flipping of penguin and tulip NFTs for tens of thousands of dollars is something I can’t grasp. Perhaps, the irony of “tulip mania” seems cute to the younger generation, but it won’t age well.
Anyhoo…. the above rant aside, the Options360 Concierge Trading Service keeps sticking to its knitting; waiting for good setups and using the power of options — for both leverage and income generation — to produce consistent returns. Recent bullish portfolio additions have been McDonald’s (MCD) and The Trade Desk (TTD).
As the then CEO of CitiGroup, Chuck Prince, said in 2007, “as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” Options360 won’t put itself in a position where FOMO leaves us stranded without a chair when the music stops. But, we also can’t be wallflowers. Options360 will participate in a sensible fashion.