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In a market where a narrow band of equities is producing the lion’s share of gains, it can be tempting for fund managers to chase those stocks because of their fear of missing out, or FOMO. That FOMO can cause managers to do things they wouldn’t normally. Charley Grant discusses some of this activity in the market at The Wall Street Journal. He writes:
Fear of being left behind is a powerful force among fund managers, even if it means taking big risks.
This year, managers not invested in tech stocks should be polishing their résumés. In the first six months of the year, technology shares accounted for more than 100% of the gains in the S&P 500.
Stocks in other sectors where investors see growth prospects can rise sharply too—as long as they have a story to tell Wall Street. Pepsi shares had their best day in nearly a decade on Tuesday after an earnings report showed its North American beverage sales had mostly stopped falling.
The best recent example of this phenomenon is Biogen , whose shares soared by about 20% last Friday, adding about $13 billion to the company’s market value. That move came after the biotech giant and its Japanese partner Eisai announced promising clinical data for patients with Alzheimer’s disease. All of a sudden, what had been a value stock became a compelling growth story, and Wall Street didn’t want to be left behind.
The stock has mostly held those gains, even as some analysts expressed skepticism that the full data will pass muster when Biogen eventually shows it. History is on the skeptics’ side; the historical success rate for clinical trials in Alzheimer’s disease is below 1%. For now, however, that is a risk that shareholders are mostly willing to accept.
Read more here.
Jeremy Jones, CFA
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