Some interesting messages from the latest set of ZEW analyst expectations.
I have written before that the ZEW survey is often misunderstood. It is not best treated as a traditional macro leading indicator. It is much more useful as a survey of professional expectations — a sentiment gauge for markets, narratives and risk appetite.
1) Equity sentiment is still only neutral
Our Risk-on / Risk-off SMA, which tracks overall investor risk appetite, still shows only moderate bullishness. Nothing extreme, despite the sharp equity rally back to new all-time highs.
The latest ZEW analyst expectations for equity markets tell a similar story.
Analyst sentiment has increased, which is not surprising given the move in equity markets. But the level is still far from euphoric. Only a net 20% of analysts expect US equities to be higher in six months’ time.
That is below average — and a long way from the 55% level that has historically acted as a sell signal.
So the message is consistent: investors are more positive, but broad equity sentiment is not yet stretched.
2) The US exodus is unwinding
For the first time in more than a year, analysts are more bullish on US equities than on European equities.