The fear of missing out, or "FOMO", is a powerful force in the stock market. To help investors gauge when sentiment is running hot (or cold), Macquarie Group Ltd (ASX: MQG) developed what it calls the FOMO Meter.

This proprietary indicator aims to quantify market sentiment and identify potential red flags when investor enthusiasm risks outpacing fundamentals.

So, what did the FOMO Meter show in May?

Sentiment climbed in May — but not too far.

According to Macquarie, the FOMO Meter rose sharply in May, climbing by +1.45 points.

However, despite the notable jump, the gauge still finished the month at +0.24. This is significant because the FOMO Meter only enters potential danger territory once it exceeds +1.0 — a level that has historically signalled elevated risk of correction and below-average forward returns.

In other words, while optimism is building, it's not (yet) at frothy extremes.

What is the FOMO Meter?

The FOMO Meter is a composite sentiment indicator developed by Macquarie to track investor enthusiasm across key equity market signals. It combines six factors:

1. The net long position of asset managers in S&P 500 futures.
2. Active managers' equity exposure, based on the NAAIM Exposure Index.
3. Sentiment from newsletter advisors—measuring bullish versus bearish views.
4. The bull-bear spread from individual investor surveys.
5. The percentage of S&P 500 stocks trading above their 200-day moving average.
6. The CBOE Volatility Index (VIX), inverted to reflect risk appetite.

Each data point is standardised, and the results are averaged to create the FOMO Meter reading.

By blending behavioural and technical signals, it seeks to offer a contrarian lens — with the idea being that when sentiment is overly positive, risks of disappointment increase.

What does the latest reading mean for the stock market?

With the FOMO Meter now modestly in positive territory, Macquarie believes investors are starting to chase returns again. The rally in May — following the April slump triggered by Trump's "Liberation Day" trade tariff announcement — has helped restore confidence.

Growth stocks, tech names, and AI-linked companies led the rebound, pushing some indices back toward all-time highs.

However, the FOMO Meter's current level of +0.24 suggests a middle ground. It is not screaming "bubble" but it is no longer indicating deep value either. This is typically viewed as a phase where market momentum can continue — especially if economic data or earnings surprises are favourable — but also a point where selectivity and risk management become more important.

Foolish takeaway

Macquarie's sentiment gauge offers a useful backdrop for asset allocation.

With FOMO rising but not yet flashing red, the stock market could still be well-placed to rise from here. This could mean it is a good time to lean into quality ASX shares with positive outlooks and sustainable competitive advantages.