Investors’ Fears of Economic Slowdown Fade as FOMO Drives Risky Asset Rally

Investors’ fears of an economic slowdown are rapidly ebbing, fuelling a rally which is boosting the riskiest asset classes in particular as the “fear of missing out” (FOMO) that dominated stock markets before last year’s sell-off returns in force.[0] The S&P 500 index is up 8 per cent since the start of the year and the Nasdaq, which is weighted towards America’s tech giants, has rallied 16 per cent.[0] Last year, they experienced a decrease of a fifth and a third, respectively.[1]

The Friday US jobs report was a hit, bolstering investors’ faith in the US economy despite the worry that a tighter monetary policy from the Federal Reserve might be needed to contain persistent inflation.[0] The markets finished the week higher despite a dip following the release of the jobs report.[1]

“Markets are pricing in the end of the inflation problem and . . . very heavily discounting the risk of a tail event,” said Nitin Saksena, head of US equity derivatives research at Bank of America, referring to unlikely but high impact events that are difficult to model. Risks such as a severe recession, a policy blunder, or a resurgence in inflation are becoming less of a concern.[1]

The one-year VIX, which tracks expectations of stock market swings over the next year, this week touched its lowest level since the onset of the coronavirus pandemic.[1]

The assets that suffered the most during the market downturn in the previous year have now become the top performers.[1] Bitcoin has seen an increase of more than 40%, while the ARK Innovation fund, led by Cathy Wood and featuring mostly high-growth tech stocks, has risen by 46%.[1]

Despite warnings from analysts and investors at major banks and asset managers like Morgan Stanley, UBS Group AG, and BlackRock Inc., that markets were too optimistic, stock prices have not been significantly affected by the weak fourth-quarter corporate results.[0] Although the S&P 500 is set to report its first annual earnings decrease since the pandemic’s peak, this is still the case.[0]

The optimists’ argument has been strengthened by the sudden improvement in the global economic outlook.[1]

0. “Investors pile into market rally as economic slowdown risk ebbs” Financial Times, 5 Feb. 2023,

1. “FOMO fuels market rally as investors assess risks of a recession are receding” Financial Post, 6 Feb. 2023,