'Some complacency has crept in': How FOMO and speculative bets are driving the 2025 market rally

Key Points

• Research suggests the 2025 market rally is driven by FOMO and speculative bets, leading to significant gains in stocks, particularly unprofitable ones, with some controversy over the sustainability of this trend.

• It seems likely that investor behavior, fueled by momentum and retail trading, is causing a disconnect from traditional valuation metrics, raising concerns about complacency.

• The evidence leans toward overbought market conditions, with potential for pullbacks, as indicated by high RSI levels and historical patterns.

Market Rally Overview

The 2025 stock market rally is hitting new highs, driven by megacap stocks and speculative trades, despite economic uncertainties. This rally is characterized by significant gains in stocks, especially those that are unprofitable, with investors showing an increased appetite for risk.

Role of FOMO and Speculative Bets

FOMO (Fear of Missing Out) and speculative bets are key drivers, with investors chasing market leaders without relying on traditional valuation metrics. Retail traders' influence and momentum trading, including in meme stocks and penny stocks, are fueling this trend, leading to a disconnect from fundamentals.

Concerns and Risks

There are concerns about complacency, with the market appearing overbought, as shown by the S&P 500 RSI at 75 and Russell 2000 RSI at 72. Historical data suggests potential pullbacks of 2-10% when RSI reaches similar highs, indicating risks to the rally's sustainability.

Supporting URLs:

• Yahoo Finance: 'Some complacency has crept in': How FOMO and speculative bets are driving the 2025 market rally

• Charles Schwab: Weekly Trader's Stock Market Outlook

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Comprehensive Analysis of FOMO and Speculative Bets Driving the 2025 Market Rally

This note provides a detailed examination of the 2025 stock market rally, focusing on how FOMO (Fear of Missing Out) and speculative bets are driving market dynamics, as reported on July 7, 2025. The analysis is informed by recent news articles and market data, ensuring a thorough understanding for professional colleagues, with a focus on investor behavior, market performance, and associated risks.

Event Overview

On July 7, 2025, multiple sources, including Yahoo Finance and Charles Schwab, reported that the stock market is hitting new highs, driven by a surge in megacap stocks and more speculative trades. This rally, despite lingering economic uncertainties, is characterized by significant gains in stocks, particularly those that are unprofitable, with investors showing an increased appetite for risk. The current analysis, based on data up to July 7, 2025, at 02:05 AM PDT, reflects the latest market conditions and trends.

Market Performance in 2025

The Yahoo Finance article, published on July 6, 2025, details that the market rally is buoyed by megacap stocks and speculative trades, with specific examples including Palantir (PLTR), Super Micro Computer (SMCI), Nvidia (NVDA), Meta (META), Circle (CRCL), CoreWeave (CRWV), and Quantum Computing (QUBT). Performance highlights include PLTR and SMCI outpacing the S&P 500, CRCL surging nearly 500% since its IPO, CRWV surging nearly 300% since its IPO, and QUBT rising over 60% in the past month. According to Bespoke Investment Group, nearly 420 stocks in the Russell 3000 jumped more than 50% between April 8 and June 27, including 14 that soared over 200%. Of these highfliers, only four are profitable, with the 858 unprofitable companies in the index gaining 36.4% during that stretch, more than doubling the 15.6% return seen among the 500 stocks with the lowest price-to-earnings ratios.

The Charles Schwab article, published on July 3, 2025, confirms this trend, noting that the S&P 500 is up 1.7% on the week, hitting fresh all-time highs at 6,274, with the Nasdaq Composite also closing at fresh all-time highs. The Dow Jones and Russell 2000 closed at their highest levels since February, further supporting the rally's momentum.

Index/Stock	Performance Metric	Details
S&P 500	Weekly Gain	Up 1.7%, closed at 6,274, fresh all-time high
Nasdaq Composite	Performance	Closed at fresh all-time highs
Dow Jones, Russell 2000	Recent Highs	Highest levels since February
Russell 3000 Stocks	Gains >50% (Apr 8-Jun 27)	420 stocks, including 14 >200%, only 4 profitable
Unprofitable Companies	Average Gain (Apr 8-Jun 27)	858 gained 36.4%, vs. 15.6% for 500 lowest P/E ratio stocks

This table summarizes key performance metrics, highlighting the significant gains driven by speculative investments.

Role of FOMO and Speculative Bets

Investor behavior is a critical driver, with FOMO and speculative bets fueling the rally. The Yahoo Finance article quotes Steve Sosnick, chief strategist at Interactive Brokers, who wrote in a client note, "MOMO and FOMO are likely to dominate until proven otherwise," noting that many investors chasing market leaders aren't relying on traditional valuation metrics. Liz Ann Sonders from Charles Schwab notes that retail favorites, meme stocks, unprofitable tech, and lower quality stocks are lifting riskier names, while Chad Morganlander from Washington Crossing Advisors warns of gamification and speculation, advising "Buyer beware." Goldman Sachs data, as cited in the article, shows that high-beta momentum stocks, a bitcoin-sensitive index, and unprofitable tech outpaced the S&P 500 in Q2, reinforcing the speculative nature of the rally.

The Charles Schwab article further supports this, stating that bullish momentum feeds on itself, especially at fresh highs, aided by performance chasing and FOMO. It notes that July seasonality favors the bulls, but caution is advised due to overbought status, indicating the speculative fervor driving the market.

Concerns and Risks

There are significant concerns about complacency and the sustainability of the rally. The Yahoo Finance article highlights an increasing disconnect from fundamentals, raising red flags on Wall Street, with experts like Sonders and Morganlander cautioning against the risks of speculative behavior. The Charles Schwab article provides quantitative evidence, noting that the S&P 500 RSI is at 75, and the Russell 2000 RSI is at 72, suggesting the market is overbought and prone to mean reversion. Historical context shows that when the SPX RSI reached highs of 82 in September 2020, 82 in December 2023, and 81 in July 2024, it led to pullbacks of 2-10%, indicating potential risks to the current rally.

Metric	Value (as of July 2025)	Historical Context
S&P 500 RSI	75	Highs of 82 (Sep 2020, Dec 2023), 81 (Jul 2024) led to 2-10% pullbacks
Russell 2000 RSI	72	Suggests overbought conditions, potential mean reversion

This table summarizes the overbought indicators, providing context for potential market corrections.

Market and Economic Context

The rally's dynamics reflect broader economic trends, with investors taking on more risk despite uncertainties. The Yahoo Finance article mentions lingering economic uncertainties, while the Charles Schwab article notes catalysts like a better-than-expected monthly jobs report and a trade agreement with Vietnam, which may have contributed to the bullish momentum. However, the speculative nature of the rally, driven by FOMO and retail trading, suggests a potential for volatility, especially given the overbought conditions and historical pullback patterns.

Expert Opinions and Implications

Expert opinions, as cited, reflect a nuanced view. Sosnick’s comment on MOMO and FOMO dominating suggests a market driven by sentiment rather than fundamentals, while Sonders and Morganlander’s warnings highlight the risks of gamification and speculation. The Charles Schwab outlook, while slightly bullish, advises caution, indicating a balanced approach to the current market environment. This duality underscores the importance of monitoring investor behavior and market indicators for potential shifts.

Conclusion

In summary, research suggests the 2025 market rally is driven by FOMO and speculative bets, leading to significant gains in stocks, particularly unprofitable ones, with some controversy over sustainability. It seems likely that investor behavior, fueled by momentum and retail trading, is causing a disconnect from traditional valuation metrics, raising concerns about complacency. The evidence leans toward overbought market conditions, with potential for pullbacks, as indicated by high RSI levels and historical patterns, warranting close monitoring for future developments.

Supporting URLs:

• Yahoo Finance: 'Some complacency has crept in': How FOMO and speculative bets are driving the 2025 market rally

• Charles Schwab: Weekly Trader's Stock Market Outlook

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