UBS Says Investors Show Clear Signs Of Anxiety About Being Left Behind As Markets Continue To Climb

Fear of missing out (FOMO) has been a driving force behind the recent bull market rise in US equities, particularly in artificial intelligence-related stocks. According to multinational investment bank and financial services firm UBS, retail investors are showing clear signs of anxiety about being left behind as markets continue to climb.

One notable example is a leveraged exchange-traded fund linked to South Korean chipmaker SK Hynix, which has grown into the largest single-stock ETF globally with assets exceeding US$10 billion.

UBS also highlighted investors' willingness to buy market dips aggressively. The benchmark S&P 500 recovered almost all of its losses from an early-June decline of 4.5% within just three trading days.

Current Environment Is “Reflationary”

Jason Draho, head of asset allocation for the Americas at UBS, said the broader economic backdrop remains supportive of further market gains. US economic growth is widely expected to expand at an annualised pace of between 2.5% and 3% during the second quarter, while falling fuel prices are helping to ease inflationary pressures.

According to Draho, the national average petrol price in the US has fallen below US$4 per gallon, down around 14% over the past month, suggesting inflation may have already peaked.

He described the current environment as “reflationary”, a scenario that generally favours risk assets such as equities. Draho believes the economy is more likely to transition into steady growth and low inflation rather than slip into stagnation.

UBS also downplayed concerns arising from the Federal Reserve's latest hawkish policy meeting. While policymakers now anticipate one interest rate increase this year, compared with expectations of no hikes in March, Draho noted that the shift remains relatively modest.

However, he acknowledged comments from new Federal Reserve Chair Kevin Warsh, who has emphasised the importance of price stability and cautioned against placing too much weight on policymakers' rate projections.

Can AI Meet The High Expectations Priced Into Markets?

Despite the constructive outlook, Draho said the sustainability of the rally will ultimately depend on whether AI-related companies can deliver the earnings growth and innovation currently reflected in market valuations.

“Investor positioning is elevated but not extreme, and generally more indicative of a positive outlook for risk-taking than sentiment indicators would suggest,” he said. 

“The continuation of the bull market ultimately hinges on AI delivering on the expectations currently built into market prices, but the macro regime is doing its part and that's likely to last for a while.”