'FOMO' rules the stock market now

• Forget AI, the Fed, and inflation – "FOMO" is now the stock market's dominant force.
• Equities started 2023 on a tear and solidified those gains in July, with the S&P 500 rising 3%.

Forget artificial intelligence, forget inflation, forget the Fed.

A new force drove stocks higher in July: "FOMO", the fear of missing out on a breakneck rally that's caught much of Wall Street by surprise.

Equities started 2023 on an AI-powered tear and solidified those gains last month, with the benchmark S&P 500 index rising 3% and the tech-heavy Nasdaq Composite climbing 4%.

July brought investors cause for cheer with a flurry of positive economic data that showed growth surging, inflation falling, and the jobs market holding firm in the face of 16 months of aggressive interest-rate hikes.

But it also marked the month many bears had to wind back their doom-mongering and accept that the surprise 2023 rally might be for real.

"We were wrong," Morgan Stanley's Mike Wilson said in a research note last week, a surprise admission of fallibility by a strategist who's long been one of the most pessimistic voices on Wall Street.

Wilson's about-face continued Monday when he told his clients that stocks are in a "pivot rally" that still has room to run with the Federal Reserve set to take a data-dependent approach to its war on inflation.

The longtime bear isn't the only market guru who's abandoned a pessimistic call.

Citi US equity strategist Scott Chronert recently raised his S&P 500 forecast from 4,000 to 4,600 points, meaning he now expects the index to hold at its current level rather than slumping 13%.

Wilson and Chronert both managed to stay pessimistic throughout the first half of 2023, even as AI pushed mega-cap Big Tech stocks to new all-time highs and a long-predicted recession failed to show up.

Their July climbdowns show that after stocks' longest winning streak in two years, FOMO now rules the market.