It’s been properly cold in the UK lately — the kind of weather that keeps you at home, kettle on, and “accidentally” watching far too much college football… just in time for the NFL playoffs to start.
On sentiment, the backdrop is still moderately bullish sentiment — supportive for risk as long as the macro picture stays constructive. The average Risk-On / Risk-Off reading is around the 62nd percentile: bullish, but not euphoric.
And importantly, we’re still stuck in that familiar 55–65 “cautiously optimistic” range: not stretched enough to scream “headwind”, but not washed-out enough to shout “buy the dip” either. In other words: conditions are still consistent with a market that can grind higher, but where surprises start to matter a bit more.
Top 3 This Week
- Sentiment: Net bullish — best described as cautiously optimistic
- Cyclicals: Sentiment rising sharply with the “run it hot” trade, but not excessive
- Tech: Notable sentiment vs performance disconnect
Sentiment Overview
- Overall sentiment remains moderately bullish, supportive of risk assets as long as macro conditions stay constructive.
- The average Risk-On / Risk-Off Heatmap indicator sits at the 62nd percentile — clearly bullish, but without a strong directional skew. Historically, this zone has been associated with slightly below-average 12-month returns; sentiment becomes a clearer headwind above ~70.
- The SMA has stayed in a 55–65 range since autumn — never reaching “overheated bullish” territory, but also never hitting “buy-the-dip bearish” levels. This backdrop fits the drifting-higher pattern we’ve seen in equities, consistent with average returns.
- Bigger picture: the current range is best described as moderately bullish / cautiously optimistic — below the sentiment ranges seen in 2024, 2021/22, and the pre-pandemic range.
- At the extremes, sentiment remains mildly skewed bullish:
- Bullish (>90th percentile): 11 indicators
- Bearish (<10th percentile): 6 indicators
- CFTC note: Hurrah — the historical backfill of futures and options data finished earlier than expected.
Equity Sectors
- Most bullish: Technology
- Most bearish: Health Care
- Technology remains firmly at the top of the rankings, with Information Technology ahead of Communication Services — a familiar picture.
- What stands out: Tech sentiment has drifted more bullish, while performance has lagged. Info Tech’s relative performance peaked in late October and has underperformed since — notable given the rising market and the sector’s typically high beta. There’s no consistent lead/lag between SMA and relative returns, but with sentiment this extended, irregularities are rarely good news.
- The average Tech indicator is now at the 72nd percentile, just below the 15-year high reached last week.
- We’ve flagged the growing popularity of Cyclicals before — and the trend continues. Industrials and Materials SMAs have both been rising rapidly in the sector rankings.
- The Cyclicals aggregate was at a 24-year low in the aftermath of Liberation Day, but has now bounced back above 50 — the highest since summer 2023.
- Materials has made the biggest step-up in recent months: from the low-20s percentile to around 57 (now firmly net bullish), reflecting a broad shift across indicators and increasingly echoed in outperformance.
- Industrials have also moved sharply higher: SMA from 33 (end-Nov) to 55, again mirrored in outperformance.
- Overall, Cyclical sentiment remains far from past peaks, so the “run it hot” rally isn’t yet running into a major sentiment headwind. The Cyclicals aggregate sits at the 53rd percentile, versus 59 in 2023, ~60 regularly pre-pandemic, and a record 85 in the post-pandemic re-opening.
Equity Regions
- The EM–DM divide has disappeared. EM and China were clear leaders since summer, but sentiment leadership has broadened rather than EM simply deteriorating.