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Billions flow back into stocks as investors fear missing out on the next rise in stocks

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Billions of dollars are flowing back into stocks and equity funds as investors brush aside fear of a recession.

“It seemed as though investors are trying to play catch up because they have a fear of missing out (FOMO) on the next upside movement in stocks,” Kevin Mahn the president and chief investment officer at Hennion & Walsh Asset Management, told Yahoo Finances On the Move, “I think it’s that fear that’s going to carry forward at least into the first quarter of next year and propel stocks even higher.”

Data from Deutsche Bank Research showed big money, $7.2 billion, flowed into equities the week that ended December 6. A note to investors points out that “strong inflows in recent weeks represent a clear inflection higher after persistent heavy outflows since last December.”

That was a week before the United States and China announced a “phase one” trade deal and that both countries were planning to delay tariff increases.

But according to Deutsche Bank, money began flowing into equity funds well before December 6 and the subsequent trade announcement. “Indeed, the last six weeks have seen inflows of $43 billion into equity funds, easily their best period since March 2018.” Most of that money went to equities outside the U.S. which Deutsche Bank says can be closely tied to global growth and are, “commensurate with a robust recovery.”

Trillions of dollars still on the sidelines

“Going back about five, six months, Wall Street was gripped by the fear of recession,” Mahn said. As recently as last month, The Wall Street Journal cited data from Lipper that nervous investors had parked $1 trillion over the past three years in money market funds, worried the bull market had run its course.

Mahn pointed out, “We had an inverted yield curve between the two- and the 10-year. We had the Federal Reserve cutting interest rates three different times and a fear of a global economic slowdown, potentially leading into a much larger recession.”

But this week, the Dow, S&P 500 and Nasdaq all hit record highs. The S&P 500 is up almost 28% year-to-date. Now, investors worried about missing out, are starting to chase higher returns in riskier assets. Mahn said those investors feel confident that economic factors have grown more stable.

The Fed signaled last week that it doesn’t plan to raise interest rates next year. Mahn said that is helping stoke the flow back into equities. “There's no longer an inverted yield curve. There's actually a 24-basis-point spread between the 10 and the two year right now,” he added.

But some analysts warn investors about chasing yield driven only by FOMO. Canacord Genuity analyst Tony Dwyer recently told his clients, “While anything can happen, our indicators simply favor not chasing the market higher on fear of missing out (FOMO).”

“We have a pretty strong economy. Lowest unemployment rate in 50 years. Wages rising. Consumers spending,” Mahn said, adding that it’s the kind of fundamentals that should keep the bulls running into next year.

Adam Shapiro is co-anchor of Yahoo Finance On the Move.

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