I’ve added a new group of indicators to the Heatmaps this week: ETF issuance based sentiment measures. By looking at each sector’s or region’s percentage of all ETFs — essentially their market share — we can get a read on where investors have been directing enthusiasm.
Fund launches, especially ETFs, are one of the simplest real-world gauges of investor sentiment. Think of funds as products that asset managers create in response to what investors want.
When investors are excited, confident, or story-driven → lots of new products get launched.
When investors are fearful, disinterested, or retreating to safety → product launches collapse.
And because popularity changes fast, I’m also tracking the year-on-year change in those shares to capture sentiment shifts.
Top 3 This Week
- Sentiment: has cooled to neutral — creating a supportive setup for risk assets into year-end
- Defensives are deeply out of favour; the sentiment gap vs. Cyclicals is the widest in a year.
- China: equity sentiment has broken away from EM and is rising more sharply.
Sentiment Overview
- Equities have retraced most of their recent losses, but sentiment has not. Overall sentiment sits well below previous highs and is only mildly bullish.
- The S&P 500 is less than 1% below its October peak, yet our Risk-On/Risk-Off indicator is still 13% lower than it was at that time.
- This pattern is typical: sentiment resets fast during sell-offs and recovers slowly. The second trip back to old highs rarely generates the same enthusiasm.
- Conclusion: A supportive backdrop for risk assets into year-end. As long as macro conditions remain constructive, sentiment is not a headwind to a further rally.
- With investors drafting their (mostly optimistic) 2026 Outlooks and positioning accordingly, the sentiment setup should help risk-taking into the final weeks of the year.
- Our SMA sits around 56, down from 65 in October but far above the post–Liberation Day low of 30. Historically this range has mapped to average 12-month equity returns with no strong directional bias.
- The VIX at 18 is firmly neutral. Falling volatility does not generate sell signals.
- AAII survey: little change, still slightly net bearish, no signal.
- Indicators remain bifurcated: plenty at bullish extremes, plenty at bearish extremes.
- Bullish extremes (>90th percentile): 12 indicators. Mostly slower-moving monthly series, but also indicators like equity put/call ratios, Nasdaq 100 put/call, net call volumes, Market Directional Hedge Fund beta, and Equity ETF flows.
- Bearish extremes (<10th percentile): nine indicators, heavily dominated by geopolitical/political uncertainty, plus the VIX put/call ratio and money-market flows.
- CFTC update: Data publication has resumed post-shutdown, but historical backfill won’t be fully caught up until 23 January 2026.
Equity Sectors
- Most bullish: Communication Services
- Most bearish: Health Care