FOMO Trade Revival: Market Sentiment and the Pursuit of Momentum Stocks

The recent surge in the "FOMO" (Fear of Missing Out) trade in markets has been fueled by the strong performance of several recent IPOs, including stablecoin issuer Circle (CRCL), AI cloud company CoreWeave (CRWV), and nuclear energy company turned AI play Oklo (OKLO). These companies have seen their stocks rise more than 100% since going public, while shares of Palantir (PLTR) and Nvidia (NVDA), two of the most popular AI trades, have also returned to trading near all-time highs. The current three-year bull market has clearly returned, with the S&P 500 back near record highs. However, some believe that the current market leadership could be ripe for change. Julian Emanuel argues for investors to seek "value in valuation" as the summer approaches, with investors closely watching for updates on Trump's tariffs and whether or not they could disrupt economic growth. Emanuel points out that the "attractive valuation" factor, including stocks like Verizon (VZ) and Tyson Foods (TSN), has lagged the "expensive" factor, which includes names like Coinbase (COIN), DraftKings (DKNG), Tesla (TSLA), and Strategy (MSTR). The trend typically reverses with the valuation factor seeing a 100% positive return in five prior instances of extreme underperformance, with an average return of 33.5% over the next 12 months. Emanuel adds that "[the] valuation factor has value again as the 'whoosh' off the low is set to pause." After tumbling nearly 20% at the market low in April, the S&P 500 is back within 2% of its most recent all-time high. As investors continue to navigate the market landscape, it is important to stay informed and make informed decisions based on the latest economic news and indicators. The current market sentiment has recovered significantly from the height of April's tariff turmoil, with 66% of investors in Bank of America's latest Global Fund Manager Survey believing the global economy will achieve a "soft landing," in which inflation falls to the Fed's 2% target without an outright downturn in economic activity.