News around the Strait of Hormuz is still driving some of the day-to-day market volatility. But beneath the headlines, equities and bond yields have been grinding higher for nearly two months.
Against that backdrop, investor sentiment remains remarkably muted.
Both of our Risk-On / Risk-Off aggregates — one based only on daily and weekly inputs, the other also including slower-moving monthly indicators — are around the 55th percentile.
That is well above the Iran war lows. But it is still below the pre-war sentiment highs, when the average indicator in our aggregates was closer to the 65th percentile.
In other words, investor sentiment is slightly bullish overall. But it is not euphoric.
That still creates a supportive sentiment setup for risk assets — provided you have a constructive macro view, where the economic cycle continues and recession risk keeps being pushed further out.
The important detail is that the muted aggregate picture hides some significant extremes beneath the surface.
This has not been an everything rally. And sentiment reflects that.
Investor sentiment around Tech and AI is close to all-time highs. But sentiment towards many cyclical assets is close to long-term lows. I wrote about this in more detail in last week’s Sentiment Ideas. The short version is that sentiment data suggests the risk/reward within markets has shifted in an extreme way.
Bottom line: Sentiment is only slightly bullish overall, which remains supportive from a market perspective. But bullishness is as narrow as the rally itself. It remains concentrated in specific parts of the market — especially Tech and AI — while sentiment towards Cyclicals, including Industrials, Value and European equities, is close to lows.
Top 3 This Week
1. Sentiment: only slightly bullish
The overall sentiment setup remains supportive for risky assets. But bullishness is not evenly spread across markets.
2. Cyclical growth vs secular growth
Sentiment in Industrials, US Value and European equities is almost as bearish as sentiment towards Tech and AI is bullish.
3. GBP: sentiment only slightly bearish
Despite the recent political turmoil, there is no strong steer from a sentiment perspective. Investor sentiment towards the pound is modestly bearish. Our SMA is at the 33rd percentile.
Sentiment Overview
- Investor surveys are sending somewhat different messages this week. But overall, the picture remains slightly bullish, which is consistent with the broader mood coming through in our Risk-On / Risk-Off aggregates.
- AAII Bull-Bear dropped to -11% net bearish. It has only been more bearish 16% of the time. But AAII is the outlier among surveys at the moment.
- Investors Intelligence Bull-Bear paints a more constructive picture, with sentiment at the 66th percentile.
- NAAIM Exposure sends a similar message, at the 69th percentile.
- The Geopolitical Risk Index continues its slow and steady drift lower. Recent news flow is consistent with that pattern. Unless tensions escalate significantly again, the market impact of further declines — at least for equities — should be limited. That is normal.