#TrumpRally #FOMO By: Gabriel PotterMBA, AIFA® 2017.03.07

Does that blog title read as English to you?  If not, you may not use Twitter very much. 

I’m sure if I were to put in all of the learned biases I have into a database, it wouldn’t take very long to figure out which age-cohort I’m from.  For instance, I grew up when Pluto was still a planet, the oxford comma was mandatory, and the # symbol was called either a number sign or a pound sign.

Twitter changed that.  The # symbol is now called a hash-tag, and its how the twitter application organizes the global free-for-all conversations that it offers.

For the past couple of weeks, professional and amateur market analysts have devoted time to the #TrumpRally, like how the Dow Jones cracked 20,000 a very short time after President Trump’s inauguration.  Some of the market gains have been a function of good economic fundamentals, the foundation of which has been in place for many months.  Still, investor sentiment is a measurable phenomenon.  The clearest sign yet that positive investor sentiment around the Trump presidency is eclipsing the economic fundamentals came last Tuesday after President Trump delivered a speech to Congress without his characteristic erratic behavior.  From a policy standpoint, there were not any new positions or concrete actionable ideas which demonstrated a potential change, positive or otherwise.  The elements of the Trump platform with the potential to change the economy – higher protectionism, a big infrastructure package, lower regulations, and so on – didn’t change in the speech last Monday night.  Indeed, the lack of actionable ideas on key areas of disagreement within the Republican camp given their intramural debate on Health Care and Tax Reform must have been a disappointment to the Congressional leadership.   The real difference in Trump’s address to Congress was that the President’s messaging seemed closer to conventional and avoided any direct self-sabotage that he has become known for.  Apparently, the change in tone was enough for eager investors to see dollar signs.  The Dow Jones immediately surged 300 points to hit the 21,000 mark for the first time ever directly after Trump’s speech.

So, what’s driving the #TrumpRally?  Allow me to introduce another bit of Twitter parlance:  FOMO – fear of missing out.  For Millennials, whose attention is glued to social media through their smart-phones, the never ending highlight of the fun activities and events partaken by friends and relatives can inspire a sense of anxiety.  Maybe it feels like everyone you know is meeting up tonight at the trendy pop-up restaurant.  Why aren’t you there?  Maybe your family is posting selfie pictures while getting in for the new blockbuster movie.  Why couldn’t you make it?  Maybe your Facebook feed is showing that all your friends have been invited to a great party.   Are you missing it?

In terms of investing, this sort of social pressure already has a name – a melt-up.  If you believe in underlying fundamentals of a company or an economy ultimately drives stock prices, then the direction of the markets shouldn’t matter much, and it may even hurt your results if you try to follow the short-term trends.  If you think the market is going up because everybody is getting in but you don’t want to miss out on the rally, even if it is not based on any additional fundamental strength, that’s a melt up.  Be careful.  A melt-up based purely on investor sentiment can flip without a moment’s notice and can be a dangerous position to build on.

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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