Forget herd immunity. What about herd mentality?

Nov 17, 2020 | Jeremy Goldfarb


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On the news of a potential vaccine from Pfizer last week, the stock markets went a little bit bananas at the open. There was the added element of clarity on the US election from to boot, however the main thrust was the vaccine. The following week (yesterday) another positive trial result was announced by Moderna and the markets rallied again. Underneath all of this, there was a slight rotation out of the growth oriented "stay at home" kind of stocks which is somewhat rational, but the real question is how the current market relates to reality. 

 

Is it the retail investor that is pushing this stock market action? Is it possible that we have a sea of amateurs chasing a rally here? 

 

My recommendation to those that ask this very question is to take a step back and assess where you are as an investor. Goldman Sachs came out with a call in the last couple of weeks that spoke to an SP500 at 4300 by the end of next year. While I would love to see something like that, I am not sure what the trigger points will be. Don't get me wrong, there are plenty of opportunities out there to put your money to work, but I would not change your investment philosophy just because you may be experiencing a little bit of FOMO. 

 

Other critical factors at work:

1- low treasury yields

2- sideline money coming in to the market

3- the retail investor and "time on their hands"

4- easier access to information

 

So the herd appears to be running now, and while the pull to deviate from your process is real, I encourage you to evaluate your decisions carefully. If you are going to make a change, make sure it is rooted in your investment philosophy. 

 

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