The market's doing that thing again. You know the one—where stocks climb relentlessly higher while everyone involved looks around nervously, like they've accidentally walked into the wrong party but are too polite to leave.
This rally has been brutal... for the skeptics. The S&P keeps pushing record highs, powered by what's supposedly a thaw in U.S.-China tensions, surprising economic resilience, and volatility that's fallen asleep at the wheel. But hardly anyone seems comfortable with it.
I've been talking to fund managers for weeks about this move, and let me tell you—they're participating, but they hate themselves for it. It's investing's equivalent of eating kale. Nobody actually enjoys it, but everyone's convinced they should be doing it.
The psychology here fascinates me. We're watching what I'd call "regretful participation" in real time. Investors piling in not because they believe in fundamentals but because missing out has become more painful than the prospect of losing money.
FOMO as an investment strategy. (Spoiler alert: this doesn't typically end well.)
Look at the positioning data and the story jumps right out. Professional money managers have been underweight equities for months, bracing for an economic downturn that keeps getting postponed like dinner with your in-laws. The consensus was to prepare for the worst, and instead, we got... well, not that.
Having covered market sentiment shifts since the pandemic, I've rarely seen such a disconnect between positioning and performance. Markets have this delicious tendency to punish consensus thinking, especially when that consensus gets too comfortable wearing its doom-and-gloom sweater.
Is the trade détente really worth all this enthusiasm? Or is it just giving everyone a convenient narrative for what might essentially be a technical bounce? We humans need stories to explain market movements, even when those movements might just be algorithms doing their thing.
We've seen this movie before, haven't we? Trade talks progress, markets rally, everyone gets excited, then some poorly-timed tweet sends us spiraling back to where we started. The difference this time—and I checked the numbers yesterday—is that volatility has been cratering, which typically makes risk-takers bold. And sometimes reckless.
Low volatility begets risk-taking. Risk-taking eventually creates volatility. It's the market's circle of life, just with more Bloomberg terminals and antacids.
One veteran trader I spoke with yesterday called it the "disbelief premium." Assets often trade with an embedded premium precisely when most participants don't trust the move. Counterintuitive? Sure. But markets climb highest when conviction is lowest, because it means there's cash on the sidelines. Once everyone believes and is fully invested? That's your exit signal.
So what's an investor to do now?
The ship has largely sailed on the binary "in or out" decision. The trickier question is how to position within a rally you're not convinced will last. Do you chase high-beta names that'll outperform if this continues? Or stick with quality companies that might offer protection when (not if) things go sideways?
The smartest approach might be what several strategists described to me as "skeptical participation"—maintaining market exposure but keeping one foot near the exit door. Think of it as going to that teenager's party but staying sober enough to drive home when the neighbors inevitably call the cops.
Maybe—just maybe—this time actually is different. Perhaps the trade tensions remain paused, economic data stays resilient, and this rally eventually gets justified by genuine improvement in fundamentals.
But I've been covering markets long enough to know that "this time is different" usually costs someone a lot of money.
For now, investors find themselves in that uncomfortable space between FOMO and fear. Nobody truly loves this rally, which might be exactly why it continues. The real challenge isn't chasing markets higher—it's figuring out when to step away from the punch bowl.
Preferably before someone kills the music.
