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3 Things Under the Radar This Week

Investing.com -- Here are three things that went under the radar this week.

1. FOMO Fever Keeps Traders Coming Back More

The fear of missing out, or FOMO should hold little place in rationally functioning markets. But as time has proven markets are neither rational nor efficient. Greed and fear have long been the two overriding emotions prompting traders to take action.

With markets riding a wave of all-time highs, FOMO fever has gripped fund managers once gain. In a desperate dash to join the rally, they have cut their cash holdings to the lowest level in years, according to Bank of America Merrill Lynch’s latest fund manager survey.

The survey of 230 managers found cash levels fell 0.8% to 4.2%, the biggest monthly decline since November 2016 and the lowest cash balance since June 2013. And their allocation to equities has gone the other way, rising 20% month-on-month to net 21% overweight, the highest level in one year.

While the U.S.-China trade war is still thought to represent the biggest risk, recent signs of progress has kept FOMO alive and well, with managers betting a partial trade deal will be consummated soon, the survey showed.

FOMO or not, some on Wall Street have warned against chasing the rally at a time when stocks appear to be running too hot.

“We think you are just plain old overbought in the equity market right now,” said Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets. “When I talk to investors and I talk to people who are more bullish, I hear the FOMO in their voices.”

With a bumpy road for risk assets expected in coming year, Goldman Sachs has also echoed caution.

“High uncertainty, investor fears of a recession, and low starting cash allocations will likely limit a significant increase in equity allocations” in 2020, Goldman Sachs said in a note to clients last month.

2. Should Boeing Whipsaw the Dow?

As indexes go, the Dow is a little crazy because it's price weighted. So the higher the stock price, the more influence the stock has on the average.

This is important because Boeing (NYSE:BA) has been perhaps the most important influence on the Dow all year. Friday, as an example, Boeing was up 1.24%, 10th best among the 30 Dow stocks. (Tops was Pfizer (NYSE:PFE) at 2.2%.)

But because Boeing is the single-priciest Dow stock at about $372, Boeing's gain of $4.55 a share translates into a 32-point gain for the index, or about 20% of the total change.

This is why news about the problems with the 737 MAX airliner, grounded in March after crashes in Indonesia and Ethiopia killed 346 passengers and crew, affects the Dow so greatly.

The index looks to finish up 1.4% on the week, or about 258 points. Boeing is contributing about 144 points, or 55% of the total gain.

Boeing shares have fallen 16.7% from a $446.01 peak on March 1 but are still up 15% for the year. The shares did go negative on the year once, on Aug. 14, when the shares were down 0.64%.

The company said this week it expects the Federal Aviation Administration to approve its fixes to the plane's flight-control systems next month, with flights resuming in late January.

The news cheered Wall Street.

Boeing still faces three huge challenges.

• Three of the biggest 737 customers – American Airlines (NASDAQ:AAL), United Airlines (NASDAQ:UAL) and Southwest Airlines (NYSE:LUV) – aren't scheduling flights using the planes until March at the earliest.

• Passengers may be reluctant to book flights that use the plane for a while.

• Boeing faces years of litigation from airlines, whose businesses have been disrupted by the groundings, and, more importantly, families of passengers killed in the accidents.

3. Buy Side Continues

Stocks ended with a flourish Friday, but will the buyers continue? JPMorgan (NYSE:JPM) thinks so.

“We keep our bullish equity market view, expecting further gains, and reiterate our September call for the rotation in style and sector leadership,” JPM said.

“We continue to believe that style and sector rotation will be seen as a positive for the overall market direction,” the analysts said. “The recent market behavior appears to confirm this. Since the September low in Value/Growth, markets are up 5% on average, with broad-based participation, and are fully absorbing 50bp upmove in U.S. and German bond yields.”

“The key for a sustained rotation is that it gets fundamental supports, namely the bounce in bond yields and in PMIs,” JPM added. “We expect both of these to come through. Euro PMIs follow M1 and China export orders, and these are improving. Global manufacturing PMI is stable for 3 months now.”

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