Welcome to the new FOMO market rally

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OPINION: Investors are chasing a bull market they’ve long spurned, just as the central banks step up their fight against sticky inflation. This week will be decisive for the rally’s fate.

US inflation comes in cool as is widely expected

But if inflation comes in hotter than expected, or if the Fed decides to lift rates due to concerns about sticky inflation and a hot labour market, then this new FOMO rally could be tested.If you ever needed proof that investors have short memories, then surely this bull market provides it.P 500 went on its pandemic tear that saw Wall Street’s benchmark index climb 87 per cent between March 2020 and the end of December 2021.

With the Fed set to make its latest call on Wednesday night, a fascinating question is whether this re-emergence of animal spirits could weigh on its decision-making. A rising equity market helps loosen financial conditions, working against the central bank’s efforts to slow the economy. And the psychological impact of a new bull market arguably creates extra momentum in this respect.

 

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