With artificial intelligence-related stocks surging, analysts and investors have been questioning if and when the trend will end. In a note Monday, Evercore ISI analysts highlighted three signs that will tell investors to fade the AI FOMO trade.
The firm described last week as "extraordinary," noting that NVIDIA's (NASDAQ:NVDA) earnings catalyzed new highs in the S&P 500.
"The Foundations of FOMO, highlighted by violent share price reactions to earnings, was also reinforced by stocks shrugging off the Fed's cautionary message against "cutting too quickly," said Evercore.
"FOMO environments tend to end without warning and/or correct rapidly, whether in Y2K, 2020's "Nasdaq Whale" and 2018's 'Volmageddon,'" they added. "While there are many catalysts to stop the FOMO momentum, the signs are few and far between."
When it comes to fading the FOMO, Evercore believes the key lies in financial conditions, "which are historically loose (96th %ile since 1990)." They state a retreat will signal a correction, "which in non-recession years averages -13%, and which we believe arrives in 1H24."
In addition, the firm told investors to focus on the recent if it climbs above VIX highs of 17.94 and Apple shares if they drop below $179.25. These two items would also be "cause to Fade the FOMO," according to Evercore.