There’s never a quiet week on the news-flow front, but as far as markets are concerned, it feels as if the heatwave across much of Europe has also put a dampener on activity.
From a sentiment perspective, the story that continues to stand out is the outperformance of areas that had the most bearish sentiment only a few weeks ago.
Cyclical growth areas, including European equities and Industrials, have had a good run, while the secular growth parts of the market have been taking a breather. That rotation has been fuelled by the combination of extremely bearish sentiment and positive growth catalysts, including progress of some sort around the Strait of Hormuz.
From a sentiment perspective, the move could run further before meeting a headwind — provided the macro data remains supportive.
Overall, sentiment remains only slightly bullish. That applies both to our higher-frequency version, which uses daily and weekly inputs, and to the broader aggregate, which also includes slower-moving monthly indicators.
The higher-frequency aggregate is back at the 51st percentile. The full aggregate is only slightly higher, at the 54th percentile.
The key message is that although many risky assets are trading near all-time highs, investors’ mood is not universally bullish. Across the breadth of indicators, sentiment is less bullish than it was before the war with Iran, less bullish than at the start of the year, and less bullish than through much of the period since last summer.
That makes this an environment where your macro view should do the heavy lifting on risk appetite. With a constructive global growth outlook, there is nothing in the sentiment picture that raises yellow flags for risky assets over the coming months.
Top 3 This Week
- Sentiment: no signs of broad-based extreme bullishness
Risky assets may be close to all-time highs, but sentiment is not euphoric. Across the breadth of indicators, the picture remains only slightly bullish.
- Cyclicals coming back into favour
Cyclical assets are benefiting from the latest rotation, and sentiment is no longer extremely bearish. Industrials sentiment remains net bearish, but European equity sentiment is already back to neutral.
- GBP sentiment is bearish in the midst of political turmoil
GBP sentiment is down to the 23rd percentile. With plenty of political news flow ahead, this is one to watch for extremes.
Sentiment Overview
- The surveys shifted in a bullish direction this week. There is still a large divergence between them, which again highlights the importance of looking at a broad dataset rather than picking a favourite indicator and getting a warped sense of sentiment.
- AAII Bull-Bear rose to the 30th percentile, bouncing from one of its most bearish readings last week.
- NAAIM Exposure also bounced, but in this case to the 88th percentile. In isolation, that would start to look worrying. In the broader context of other indicators, it looks less alarming.
- Investors Intelligence Bull-Bear has stayed in a narrow range for two months. It remains in neutral territory and is probably the closest reflection of overall sentiment.
- Margin debt rose to a new all-time high in absolute terms, but so did equity market cap. The more important measure — margin debt as a percentage of equity market cap — hardly moved. It is now around 2.18% of S&P 500 market cap. That is up from the 2024 low of 1.6%, but still well below much of the 2010s and below the historical sell threshold above 3%.