The S&P 500 may be back at all-time highs, but broad investor sentiment remains only slightly bullish.
Two points are worth making.
First, it is normal for equities to make new highs before sentiment does. Investors adapt quickly. Yesterday’s “wow, new highs” becomes today’s “normal.” The second or third time markets revisit an old all-time high, it is much easier to take it for granted. In practice, it usually takes a sharper rally, faster gains, or a move to meaningfully higher highs to push sentiment into truly worrying territory.
Second, this has been a narrow rally, with Tech doing most of the heavy lifting. The rest of the market has not seen the same steep gains. That divergence shows up in sentiment as well. Our broad Risk-on / Risk-off indicators show only moderate bullishness, while Tech sector indicators are moving back towards historically extreme bullishness.
Our Quick Risk-on / Risk-off aggregate, which uses only daily and weekly inputs, has been around the 60th percentile for the past two weeks. That means investors are net bullish, but still well below the pre-war peaks — and below the levels that have historically been followed by below-average equity returns at a high hit rate.
The slower-moving Risk-on / Risk-off aggregate, which includes more monthly inputs, tells a similar story. The average indicator is at the 58th percentile.
Both readings are consistent with average equity market returns over the next 6–12 months.
Bottom line: sentiment is slightly bullish, but not stretched enough to send a strong warning signal. This remains a constructive sentiment setup as long as the macro backdrop stays supportive.
Top 3 This Week
- Sentiment: slightly net bullish, but far from yellow flags.
Broad investor sentiment has improved, but it is not stretched. Tech is the exception. - Commodities: bullishness is broadening out.
Commodity sentiment was bifurcated for a long time. That is starting to change, with bullishness spreading into soft commodities. No warning flags yet, but worth watching. - Cyclicals: sentiment is falling into very bearish territory.
Cyclical sentiment has weakened sharply, but is not yet back to last autumn’s lows, when the last cyclical rally began.
Sentiment Overview
- Weekly surveys show a wide divergence, but none are at historical buy or sell thresholds.
- AAII Bull-Bear fell back into net bearish territory, with slightly more Bears than Bulls.
- Investors Intelligence Bull-Bear rose for the third week in a row. At +27% net bullish, it is now back above its long-term historical average.
- NAAIM Exposure remains very bullish. It is still at the 89th percentile, the highest since mid-January.
- The Geopolitical Risk Index remains below 200. Headlines from the Middle East are still volatile, but the shock value of the news flow has declined, in line with the historical baseline. This is normal.
- But the bigger-picture point has not changed. We remain in a world of elevated geopolitical risk. The 1-year average GPR has been above its long-term average of 100 since 2022 — before “Trump 2.0” — and continues to trend higher. It is now closing in on the early-1990s peaks.
- Cash allocations in the AAII Asset Allocation survey ticked higher for the second month in a row, to 15.9%. That takes cash allocations further away from the historical sell threshold at 14%.
- US economic policy uncertainty declined to the lowest level since August. But by historical standards, policy uncertainty remains incredibly high. Historically, such high levels have been followed by strong future returns. The open question is whether the Trump administration’s policymaking has created a new normal — and therefore shifted the buy threshold higher as well.
- Trade policy uncertainty has also been declining. It is now close to the lowest levels seen since Donald Trump’s November 2024 election.
- Extremes are heavily skewing towards bullish sentiment:
- Bullish (>90th percentile): 16 indicators (17 last week)
- Bearish (<10th percentile): 5 indicators (4 last week)
Equity Sectors
- Most bullish: Technology
- Most bearish: Health Care