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FOMO Or The Real Thing? Thumbnail

FOMO Or The Real Thing?

Market Musings

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group


Equities have rallied this week between 1 and 3%, depending upon which market index you're tracking.  Then our fearless leaders began speaking this morning and that changed the tone on Wall Street.  Some experts think investors are merely suffering from FOMO (Fear Of Missing Out) on the brief rally.  Others say this may be the beginning of something bigger.  There aren't many more iconic movie posters, nor movies that remind us of the '80s than "Footloose."  The movie was a surprise hit in 1984 and the soundtrack grew in popularity during the Summer of that year, hitting #1 on the Billboard 200 Album Chart where it stayed for 10 consecutive weeks.  The album hosted 6 top 40 hits, three of which made it to the top 10, and two number-one hits ("Footloose" and "Let's Hear It For The Boy").

  • The film cost an amazingly low $8.2 million to make, but earned more than $80 million worldwide.
  • Most of the young cast were largely unheard of.  However, this movie was actually not Bacon's first role, as he played an Omega Theta Pi fraternity pledge in "Animal House" six years prior to this role.
  • In a 2013 interview, Bacon admitted that he actually tips DJs at weddings not to play the title song because people expect him to get out on the floor and dance like he did in the movie.  I hate to spoil it for everyone, but, while Bacon did so some dancing in the movie, he also had five different dance doubles.
  • The movie is actually based on events from a true story in Elmore City, Oklahoma, where dancing had been outlawed for nearly 90 years until a group of high school teenagers challenged it.
  • Some interesting actors who auditioned for the movie, but didn't get the part:
    • Ren McCormack:  Tom Cruise, Rob Lowe, & John Travolta.
    • Ariel Moore:  Madonna, Michelle Pfieffer, Meg Ryan, & Brooke Shields.
  • The scenes where Chris Penn's character (Willard) learns to dance are real as Penn really could not dance.

Here's what we've seen so far this week...

Votes In Hand.  Per usual, the message coming from the Fed is mixed to keep investors on their toes.  The reality is that regardless of what the multiple Fed speakers opine about, Powell is going to do what he's going to do.  It reminds me of a great scene in Footloose as Ren has failed to get the city council's approval to change the law against dancing.  His boss Andy says, "You know you were railroaded, don't you?"  Ren responds, "Huh?"  Andy says, "Boy, when are you gonna wake up and smell the coffee? Shaw Moore walked into that meetin' with them votes already in his pocket. You didn't have a prayer."  This week, most of the Fed speakers have been more hawkish than dovish.  That has moved rate hike odds slightly toward a 25 basis point rate hike next month.  The comments themselves were nonsensical.  Mester, of the Cleveland Fed, stated that rate hikes should not stop due to "stubborn inflation."  That might make sense if inflation had not already declined for 10 consecutive months!  The last component of inflation that was still rising was Services, which has declined for 2 consecutive months as Producers are slowly passing along cost savings to the consumer.  Other Fed speakers such as Barr and Williams acknowledged that the stress on banks and delayed effects of multiple rate hikes need to be weighed in next month's decision.  Some dovish Fed speakers, Logan and Goolsbee, noted that they had not made up their mind about June's decision saying they would be "data dependent."  Either way, the Fed Funds futures shifted over the past week from 80%+ in favor of no rate hike to only a 67% probability.  Equities have been positive all morning, but now that Powell is taking part in a panel this morning with former Fed Chair Bernanke, equities are a little unsettled.  The Fed just can't help itself - it has to be the center of attention.

FOMO, Or Not So Much?  No one seems to agree as to whether we're headed for recession or not.  While some data shows concerning trends, other data does not.  Economists seem about as confused as Willard in "Footloose."  A great piece of dialogue from the film is as follows:

Ren: You like Men at Work?
Willard: Which man?
Ren: Men at Work.
Willard: Well where do they work?
Ren: No, they don't, they're a music group.
Willard: Well what do they call themselves?
Ren: Oh no! What about the Police?
Willard: What about 'em?
Ren: You ever heard them?
Willard: No, but I seen them.
Ren: Where, in concert?
Willard: No, behind you.

There's even a bit of confusion between the Fed and the Treasury.  Powell this morning reassured the public that the US banking system was solid.  Meanwhile, a report has emerged that Treasury Secretary Yellen told a group of large bank CEOs yesterday that they could expect more bank mergers.  This news comes after Regional Banks had their best week (+10%) since November, 2020 and Financial stocks were up more than 2% before this morning.  On top of that, investors had shown optimism on the debt ceiling talks this week, until this morning when negotiations quickly stalled shortly after a meeting this morning began.  We remind you that most of this theater involves negotiation tactics meant to be front-and-center in the media.  The reality is that Money Market Flows continued to decline, indicating a lack of fear among investors.  The Fed's Discount Window, which had ballooned during the Banking Crisis, was down to $9.05 billion last week, down from $9.32 billion the previous week.  And, both the VIX (volatility) and the TED Spread (fear) are trading below their 50-day and 200-day moving averages indicating relative calm on Wall Street.  Absent today's news, the S&P 500 Index closed yesterday at 4,198, which is slightly above the previous high of 4,179 on February 2nd of this year.  That shows some considerable relative strength that could propel markets higher if this morning's news does not materialize into something more significant.  As we near the end of rate hikes, history shows that equities tend to move higher in the short-term.

I would be remiss if I didn't include a link to one of the more quoted scenes from an '80s movie as Kevin Bacon's character Ren takes it to the small town city council of Bomont, Texas...

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Disclosures

The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

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