One of the questions I get asked most often is:
“What’s the consensus trade right now?”
The simplest way to answer it is to rank assets by sentiment.
Our Sentiment Matters Aggregates combine more than 700 sentiment indicators across more than 50 assets. They bring together surveys, positioning, flows, options activity and market-based measures to show where sentiment is most bullish—and where it is most bearish.
For contrarian investors, that makes the ranking a useful place to start.
Consensus does not mean wrong. Strong sentiment often reflects strong fundamentals and persistent momentum. Equally, deeply disliked assets can remain under pressure for good reason.
But the more one-sided the consensus becomes, the more vulnerable it can be to a change in the prevailing narrative.
This note looks in more detail at three of the strongest consensus longs—Technology, US equities and Brazilian equities—and three of the clearest consensus shorts—sovereign bonds, the Canadian dollar and Consumer Discretionary.
The aim is not simply to fade the most popular assets and buy the least popular ones. It is to identify where expectations may have become stretched, what could challenge them and where the most interesting contrarian opportunities may be emerging.
The current consensus ranking
The top of the sentiment ranking is dominated by equities, metals and selected emerging-market currencies.
The South African rand is currently the most bullish asset in our universe, followed by Technology. US equities, Brazilian equities and industrial metals also sit firmly towards the top of their historical sentiment ranges.
At the other end, bearish sentiment is concentrated in currencies, defensive equity sectors and bonds.
The New Zealand dollar and Canadian dollar are close to the bottom of their historical ranges. Health Care, Consumer Staples, High Yield, the Japanese yen and sovereign bonds also rank among the most disliked assets.
The bullish and bearish extremes are not perfectly symmetrical.
Most of the strongest consensus longs sit between roughly the 80th and 95th percentiles. By contrast, the most bearish currency readings are close to outright capitulation.
That does not automatically make the bearish assets better contrarian opportunities. But it does mean the hurdle for a positive surprise may be considerably lower.
Consensus longs
Technology
Technology is currently the most popular equity sector in our cross-asset universe and one of the strongest consensus longs overall.
What stands out most is how resilient investor bullishness has remained despite substantial underperformance over the past two months.
That looks similar to what we saw during the five months of Tech underperformance earlier this year. Sentiment indicators remained extremely elevated even as relative performance weakened. Eventually, however, sentiment did fade.
This is highly unusual across the assets we track. Sentiment and performance rarely decouple for such an extended period.