This is the final full Heatmap update of the year. From here, I’ll continue to publish updated Heatmaps, but with lighter commentary as liquidity thins and the calendar takes over.
Unless of course, if we get meaningful market or sentiment moves — and experience suggests that markets have a habit of refusing to stay quiet for very long, even at this time of year.
For now, here’s the last full read on sentiment and positioning before we head into the year-end stretch.
Top 3 This Week
- Sentiment: supportive Outlook Effect as investors position to align portfolios with their own bullish 2026 Outlooks
- GBP: Sentiment has turned very bearish — the weakest in three years following the Budget
- Bonds: Sovereign sentiment at a two-year low after the repricing of Fed leadership, reaction function, and the policy path
Sentiment Overview
- With only a handful of trading days — and even fewer liquid ones — left in 2025, the broad sentiment backdrop remains largely unchanged. Historically this time of year has been supportive for equities, but focusing purely on sentiment: conditions remain constructive rather than stretched.
- Equity markets have largely gone sideways since October, and sentiment has done the same. The setup into year-end still supports risk assets as long as macro conditions remain stable.
- The average indicator in our Risk-On/Risk-Off Heatmap sits around the 60th percentile — clearly bullish, but below October’s peak of 65 (a level also reached several times last year). Historically, this zone has been associated with slightly below-average 12-month returns, without a strong directional skew. Sentiment only becomes a clearer headwind above ~70.
- A key tailwind remains the Outlook Effect. Investors typically want portfolios aligned with the outlooks they publish in November and December. Our latest Buy-Side Sentiment Tracker shows broadly bullish sentiment, with a growing tilt toward a growth re-acceleration narrative — a setup that should continue to support risk-taking into year-end.
- At the extremes, sentiment remains relatively balanced
- Bullish (>90th percentile): 9 indicators
- Bearish (<10th percentile): 7 indicators
As usual, four of the bearish extremes are uncertainty measures with a weak track record as contrarian signals.
- CFTC reminder: Futures and options data is being published again post-shutdown, but historical backfill will not be complete until 23 January 2026.
Equity Sectors
- Most bullish: Technology
- Most bearish: Health Care
- Tech has reclaimed the top spot from Communication Services — but in practice this changes little. Both are effectively Tech-heavy sectors today and have dominated the sentiment rankings for months.
- The average sentiment aggregate for both Technology and Communication Services sits above the 70th percentile — bullish by any measure and close to the highest levels seen in 15 years (with the usual caveat that sector composition today differs materially from the GFC or TMT-bubble eras).
- Health Care has modestly outperformed since summer, but sentiment remains deeply bearish. Buy-side views show only a marginal improvement, while Schwab flows and sector ETF market share all remain below their 10th percentiles.
- Materials sentiment has eased slightly from November highs, but remains one of the biggest improvers in recent months — rising from the low-20s percentile to around 41. Not bullish yet, but a meaningful shift visible across multiple indicators.
- Utilities: Sentiment continues to recover and has turned net bullish for the first time since September. This has been driven mainly by CFTC positioning (still slightly delayed), while buy-side sentiment remains cautious.
Equity Regions
- The EM–DM divide remains the clearest regional contrast and has been stable for weeks.
- Emerging Markets: Despite giving back some performance, sentiment remains fairly bullish. Notably, China sentiment has cooled slightly and is now less bullish than broader EM for the first time since summer.
- Europe: Sentiment continues to rise. The average indicator is now at the 64th percentile, matching the highs seen during spring’s fiscal-optimism phase — consistent with the pro-cyclical shift seen in buy-side positioning.
- US equities: Stuck near neutral, around the 50th percentile.
- Japan: Sentiment has faded back toward neutral as early optimism around political change and fiscal reform has cooled. For Japan bulls, this reset leaves room for renewed upside if the growth narrative regains traction.
Fixed Income
- Most bullish: Emerging Market Debt
- Most bearish: Sovereigns
- EMD sentiment continues to edge higher, with the average indicator at the 68th percentile — the highest this year, though still below 2024 peaks. Buy-side sentiment tells a similar story.
- Sovereign bonds: Sentiment has fallen to a two-year low following the repricing of Fed leadership, reaction function, and the expected policy path. The average indicator sits around 42nd percentile — weak, but not extreme in a longer-term context.
- Investment Grade: Sentiment has rebounded slightly but remains broadly neutral.
- High Yield: Slightly net bearish, and has recovered less than equities since the pre-Liberation Day shift.
FX
- Most bullish: BRL (Brazilian Real)
- Most bearish: CAD (Canadian Dollar)
- BRL: Back near bullish highs. SMA around 85, with five indicators above the 90th percentile and two more close behind. Momentum remains strong, but positioning is increasingly narrative-sensitive.
- CAD: A modest rebound in sentiment alongside currency strength, but from extremely bearish levels. The average indicator has moved from the 6th to the 11th percentile — still deeply unpopular, but with no obvious sentiment headwind to further CAD appreciation.
- USD: Stuck in “unpopular” territory, with no meaningful change since June.
- GBP: Sentiment has deteriorated sharply since the Budget, with the average indicator now at its lowest level in three years.
- Bitcoin: Sentiment remains near the bottom of the 2025 range. Fear & Greed sits at the 3rd percentile, though the short history limits interpretability.