Do you know what MOMO and FOMO are? These acronyms are expected to dominate the markets in the near future.

Financial markets are likely to be dominated by MOMO and FOMO in the coming months, following a strong second-quarter close, says Steve Sosnick, chief strategist at Interactive Brokers.

MOMO and FOMO are nothing more than acronyms used in financial markets to refer to so-called momentum trading (MOMO), a strategy that focuses on buying and selling assets based on the current trend, that is, entries into assets occur in the direction of the current trend (up or down), and Fear of Missing Out (FOMO), that is, missing an opportunity for a large profit in the market.

"What can we expect in the future? MOMO and FOMO are likely to dominate the markets until proven otherwise. Newton's first law applies: An object [in this case, referring to the markets] that is in motion will remain in motion until influenced by an external source. There are many potential risks, and therefore a 'solid wall' of concerns lurking on the horizon, but implied volatilities are relatively low because the market has increasingly chosen to ignore them. This includes tariff moratoriums, the Big Beautiful Bill (the already-passed US budget bill), with the potential to cause growing deficits, the weak dollar, and the upcoming earnings season," is Steve Sosnick's outlook for the markets ahead.

"Except for a few brief and painful weeks, none of them have proved strong enough to halt the momentum . Whatever hasn't 'killed this market' has made it stronger. But just because none of them have done so so far doesn't mean they won't. Keep an eye on bonds —a much steeper yield curve would signal deficit fears—and earnings . Any of them could prove to be that 'external force,' even if they aren't a cause for concern now," reinforces the chief strategist at Interactive Brokers.

Second quarter was good for the markets

Analyzing the second quarter of the markets, Steve Sosnick considered it a “phenomenal” period despite a “devastating” decline and a “euphoric” recovery.

"I was tempted to call it a roller coaster, but roller coasters usually start with a slow climb to the peak, then a harrowing drop before a volatile ride for the rest of the ride. This quarter did the opposite. We started with a big drop—which began in the previous weeks—and then a volatile ride before the steady climb that continues today," said Interactive Brokers' chief strategist , referring to the second quarter.

Steve Sosnick considered that benchmarks for US stocks performed "well," despite "major divergences lurking beneath the surface." Large-cap tech (companies valued at over $10 billion) performed positively, and anything remotely related to artificial intelligence (AI) ended up performing well, Sosnick said. "The S&P 500 had an excellent quarter, rising 9.5%," the chief strategist added.

"When we look at the relative performance of the S&P Growth Index, that is, the S&P with 'growth' companies, compared to the index for ' value ' companies and the S&P 500, we see a wide dispersion in performance. There is roughly an eight-percentage-point spread between 'growth' companies and the S&P 500, and again between the S&P 500 and 'value' companies. It's all about 'growth,'" reinforces Steve Sosnick.

"Since the beginning of the year, we've seen something similar, although the numbers are slightly different. The S&P for 'growth' companies/Nasdaq 100 are 'driving the bus,' with growth of between 7% and 8% since the beginning of the year, compared to 4.95% for the S&P 500 and 1.8% for the S&P 'value'," emphasizes Steve Sosnick.

Steve Sosnick also adds that another way to demonstrate the dominance of large-cap tech is by comparing the Nasdaq and the S&P 500 with the S&P 400 Midcap (with market caps between $2 billion and $10 billion) and the Russell 2000. "We see that the S&P 500 outperforms both the Russell 2000 and the S&P 400 Midcap," says Interactive Brokers' chief strategist . "But when we look at performance since the beginning of the year, we see that the smaller-cap index is trying to catch up this quarter," Sosnick noted.

Interactive Brokers' chief strategist considered that, overall, financial markets performed "well" in the second quarter and since the beginning of the year.

"Notably, this occurred as the US dollar hit multi-year lows against a basket of major currencies," said Steve Sosnick. "The dollar's decline has been beneficial for US companies, whose abundant international revenues benefit from favorable currency conversion, but the combination of a weaker dollar and rising stocks likely indicates a steady migration of money from various US assets to foreign markets," added the brokerage's chief strategist .

In the second quarter, the Nasdaq 100 remained in the lead, but the Japanese index, the Nikkei 225, rose double digits, outperforming the S&P 500 and other markets, or indices, such as the EuroStoxx 50, the FTSE 100 (United Kingdom), DAX (Germany) and the Hang Seng (Hong Kong).

"Since the beginning of the year, the winners have been the Hong Kong stock index and the German stock index (DAX). Their 20% gains far outpace the Nasdaq 100's 7% gain, while the Stoxx 50 has kept pace with the Nasdaq 100. We note that the Japanese Nikkei index has lagged since the beginning of the year, making its recovery in the second quarter even more significant," concludes the chief strategist at Interactive Brokers.