Investor sentiment has shifted more bullish alongside rising equity markets, but remains far from stretched.
While the S&P 500 is less than 1% below its August highs, our high-frequency Risk-on Risk-off indicator is still almost 20% below its own August peak.
So I would still describe the broader investor sentiment picture as moderately bullish.
That is a level where sentiment is no longer a tailwind for risky assets, but is not yet a significant headwind either. On my -3 to +3 scale, I would score sentiment at -1 in my investment process.
At these levels, other parts of the investment process are more likely to dominate the risk decision.
If your macro outlook is bullish, based on global growth remaining solid, sentiment would not overrule that view. If your macro outlook is bearish, perhaps driven by deteriorating geopolitics, sentiment may provide a small supporting argument for a more cautious stance.
Our high-frequency indicator is currently in the high 50s. The version using only currently available inputs is slightly higher at 63 than the SMA using the full data set.
Historically, readings around these levels have been associated with slightly below-average equity returns over the following one, three, six and twelve months, with below-average returns occurring slightly more than half the time.
Top 3 This Week
1. Sentiment: moderately bullish
Sentiment is more bullish than last week, but remains far from stretched.
2. Treasuries: sentiment collapse
Our SMA has fallen to the 11th percentile — the lowest since 2022. Treasuries are now firmly on the list of assets where a bearish consensus is worth challenging against your own macro view.
3. Technology: back to max bullish
Technology is once again one of the most bullish assets in our universe, with our SMA at the 99th percentile. Strong momentum still supports the trend, but such extreme optimism leaves the sector increasingly vulnerable to disappointment or rotation.
Sentiment Overview
The familiar picture of ‘four surveys, four messages’ remains in place.
That is why I prefer looking at the breadth of sentiment data rather than relying too heavily on a favourite indicator, which may well be an outlier at any particular moment.
- NAAIM Exposure (bullish) bounced back after dropping to neutral in the previous week and is now back at the 80th percentile.
- Investors Intelligence (bullish) has been drifting lower for several weeks but remains at the 71st percentile.
- AnimusX (neutral) is often the most volatile of the four surveys we track here, but has been relatively stable for the past couple of weeks. At the 31st percentile, it is only just inside neutral territory.
- AAII Bull-Bear (bearish) has bounced off its lows but remains the bearish outlier. As a well-known and rightly highly regarded survey, I have seen sentiment aggregates that rely disproportionately on AAII conclude that overall investor sentiment is outright bearish. I disagree with that interpretation and would strongly argue for using a broader data set.