'Weaponized FOMO' has been a theme of market rally, Nvidia

Shares of Nvidia (NVDA) are rebounding in Tuesday's session after a three-day sell-off. Interactive Brokers Chief Strategist Steve Sosnick joins Market Domination to discuss Nvidia's stock movement and the broader tech rally.

"It's Nvidia's market and we're all just trading in it," Sosnick explains. He notes how Nvidia has been spearheading the tech sector's growth (XLK) and the broader market rally (^DJI, ^IXIC, ^GSPC). While the tech sector's rally may spark concerns, he notes that its recent dip isn't a problem "because of end-of-the-quarter factors making it more of a rotation."

"These companies do earn very good money. And someone asked me today, 'Would you buy Nvidia at these levels?' And my comment was kind of neither here nor there because it's not cheap, but it's not expensive either, because they do earn ridiculous amounts of money. It's just how much growth is priced in," Sosnick explains.

He points to "weaponized FOMO" as one of the themes driving the market rally:

"For institutional portfolio managers, it's the real deal. And the reason being is they can't be behind their peers. So, if that guy over there is making a ton of money in Nvidia or that guy's making it in GameStop (GME), I may not have put all my chips on the table. That's fine. But if I'm an institutional investor, I can't professionally be in that bottom quartile. I can't miss this rally," he explains. Sosnick adds that this creates a "piling effect" where stocks become very heavily weighted.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Melanie Riehl

Video transcript

Let me ask you this, Steve.

So uh Peter Bova today, who was a very smart strategist, like yourself telling his clients this morning, he said for the past month or so, Steve that NVIDIA is what he's been making a beeline for.

Not, not the tenure.

He goes right to NVIDIA, sort of his gauge, his general barometer.

Is that what you've been doing, Steve?

Are you as focused NVIDIA Jetson Wang's company for better or worse?

I have no choice but to be why do you say that Steve because it's Nvidia's market and we're all just trading in it.

I mean, realistically, um it's been dragging us higher and, you know, you could see now we're in a bit of an interesting little cycle where, where the, the index, you know, if you look at, if you look at the major industries and I'll define them as S and P 500 NASDAQ 100 they move with NVIDIA and you know, yesterday, for example, they sold off not, you know, S and P not in a major way because the difference was the advancers on the nyse outpaced decliners 2 to 1 today.

It's the opposite.

So you've got NVIDIA and the big cap tech pulling the market higher.

Um, whereas most of the stocks are lower.

So it's this weird NVIDIA and Friends vis a vis everybody else.

And it's a strange dynamic right now.

Now, it's interesting because, um, I know you saw the piece that our Josh Schafer highlighted today with some research from Blackrock saying that tech, tech, uh mega caps leading is not necessarily a bad thing because their earnings are doing well.

So it's not as though they're leading with sort of nothing behind it.

Is that how you see things though?

Yes, but I, I mentioned, I happen to see Josh on the way in.

He might have told us that.

Yes.

But, and my, and my reason, the reason is, you know, I'm not gonna contest the data, you know, and, and, and I guess that there, you know, it is not necessarily the death if it's a, if it's a narrow rally, but just something nags at me that, you know, because if everybody's trying to crowd into one particular sector, what happens if they try to get out?

And that becomes very problematic?

We didn't see that become a problem yesterday.

I think that's because of end of the quarter factors um making it more of a rotation.

Yes, these companies do do earn very good money.

And someone asked me today, you know, is NVIDIA, would you buy NVIDIA at these levels?

And my my comment was kind of neither here nor there because it's, it's not cheap, but it's not expensive either because they do earn ridiculous amounts of money.

It's just how much growth is priced in.

And if, if they meet their growth targets, if they continue to grow at this exponential rate, it's not, it's not an expensive stock.

If there's the slightest stumble, they are priced to perfection.

And that's where the risk comes in.

But are you, are you surprised though?

Because obviously this has been the big theme.

The rally has been, you know, narrow, right?

Are you surprised that it's been narrow?

Because some would say Steve, of, of course, this, these are the companies that are leading.

These are, you know, so the argument will go our biggest, most innovative dynamic, disruptive companies out there, of course, they should be leading, they should be leading.

But, you know, the to what, to what extent should they be just leading and leaving everybody else behind is more the question, you know, uh uh one of my themes for the years to date so far has been weaponized FOMO.

And I think that's really what's driven a lot.

What do you mean by weaponized Fomo, Fomo being fear of missing out?

You know, it's something that we all have, you know, we, you know, just go on Instagram one day and you'll, and you'll get it when you see what one of your friends is doing.

But in reality for institutional portfolio managers, it's the real deal and the reason is they can't be behind their peers.

Right.

So, you know, if, if, if some, if you know that guy over there is making a ton of money in a video, that guy's making it in games, stop.

Ok, I'm not, I may not be, I may not have put all my chips on the table.

That's fine.

But if I'm an institutional investor, I can't professionally be in that bottom quartile.

I can't miss this rally.

I don't, I can't hear from my, my investors.

And what are you doing out there?

So I think what happens is that's where the piling on effect comes in and we see it.

Some of them are, you know, heavily weighted in, in, in the uh stocks themselves.

Some of them are using options because they may not want to put all their eggs in one basket.

So they'll buy call options which, which give them the exposure to the upside while limiting the, while limiting their downside risk.