The overall sentiment picture is one of moderate bullishness.
The signs of extreme bullishness from early August have faded, but there are also very few indicators suggesting outright bearishness.
Of the 51 indicators in our core Risk Assets Heatmap, six are currently below the 10th percentile and seven above the 90th percentile.
One of the standouts last week was the AAII Bull-Bear spread.
It is highly regarded, and rightly so. I also rate it 3 out of 3 for its long history, transparency, weekly frequency and, most importantly, its historical track record of sending useful signals.
Thursday's reading came in at -24.5% net bearish, the most bearish level since the Liberation Day sell-off in spring 2025.
On the surface, that sounds like a surprisingly bearish sentiment message. And it is. But there are two things that moderate the takeaway for me.
Firstly, the AAII is an outlier in the current sentiment landscape.
At the 6th percentile, it is one of only six indicators out of 51 that are below the 10th percentile. The average indicator, meanwhile, is still around the 60th percentile, so net bullish.
This highlights one of the values of our Heatmap approach: focusing on the breadth of the evidence rather than falling into the cherry-picking trap of putting too much weight on your favourite indicator, which may be an outlier at times.
Secondly, at -24.5%, the AAII is not yet sending a strong and consistent buy signal.
Historically, readings at these levels have been followed by slightly above-average S&P 500 returns over the next one, three, six and twelve months. The hit rates for above-average returns have been reasonably encouraging, at around two-thirds.
So, for now, I would interpret the AAII's bearishness as a sign that sentiment may be less bullish than some indicators suggest. But I would want to see confirmation from other sources before placing greater confidence in its signal.
Stepping back, the bigger picture is that sentiment may have cooled, but it remains net bullish. And equities have held up remarkably well against a backdrop of sharply higher sovereign bond yields.
That is not necessarily unusual. Historically, rising bond yields have not automatically been bad news for equities. In fact, equities rising alongside yields has been more the norm than the exception.
The bigger danger has historically been a spike in bond market volatility.
Our historical analysis suggests that when the MOVE Index has risen above 180, and particularly above 200, subsequent three-month equity returns have typically been negative, with a high hit rate.
So, while rising sovereign yields are worth watching, a sharp increase in bond volatility would be the more concerning signal for equities.
Top 3 This Week
1. Sentiment: moderately bullish
The August froth is gone, but indicators suggesting outright bearishness, like AAII, remain the exception.
2. Energy sector approaching extreme bullishness
Energy sector sentiment has climbed back to the 93rd percentile. We explored potential vulnerabilities in Friday's Deep Dive, but sentiment has crept even higher since then.
3. CAD: no longer extremely bearish
CAD sentiment has been improving from extreme lows. Our SMA is still bearish, but currency appreciation has taken some of the froth off the bearishness.
Sentiment Overview
The four weekly surveys we track paint a mixed picture, although the broader shift in recent weeks has been towards less bullish sentiment.