20 October 2025
A few updates this week: we’ve added quality scores and historical buy/sell thresholds for the equity sectors — the result of our latest round of indicator back-testing.
Top 3 This Week
- Sentiment has cooled off slightly – still net bullish, but well below the highs of this year and last.
- Bullish Tech sentiment heading into earnings season, with the average indicator at its highest level in 8 years.
- Japan the most popular DM region. Markets are giving the benefit of the doubt on growth and reforms. Can the government deliver?
Sentiment Overview
- After a stable week in which equities neither regained old highs nor extended the decline, sentiment also stayed below the year-to-date highs from early October.
- The VIX remains around 20 – well below buy-signal territory. Historically, a VIX at this level has been followed by average returns over 1, 3, 6, and 12 months. Even last week’s high of 28 doesn’t change that picture. The VIX only becomes interesting as a contrarian signal once it breaks above 35, ideally 40.
- Our Heatmap spent most of the week in the mid-to-high 50s, the lowest levels since July. For context: the 2024 high was 66, and the historical sell threshold is 73. This zone typically corresponds to average 12-month equity returns.
- Indicator changes: 23 moved in a bullish direction vs. 31 bearish.
- Implied volatility indicators saw the largest moves. Given their frequency and sensitivity to market drops, that’s not surprising. But none of the implied-vol indices have reached levels that have historically produced useful buy signals.
- AAII Sentiment Survey: one of a few to take a bearish turn last week. After several weeks in net-bullish territory, it fell to 12% net bearish. Not a buy signal, but historically consistent with slightly above-average equity returns over the next 1, 3, 6, and 12 months.
- This drop makes AAII an outlier among sentiment data. For example, the Investors Intelligence Bull–Bear survey remains at the 95th percentile. As noted last week – beware the cherry-picking trap in sentiment analysis.
- Hedge Fund Betas: among the biggest decliners this week. Macro Hedge Fund Beta remains near extreme highs, but most other strategies fell meaningfully. The global hedge fund index beta is now around the 40th percentile.
Equity Sectors
- Most bullish: Communication Services
- Most bearish: Health Care