The much awaited and widely predicted correction (that no one really ended up predicting) has turned 2 weeks old now, and driven the S&P 500 down almost -12% top to bottom. So it’s timely to take a snapshot of where sentiment is sitting across a number of key indicators including the weekly survey on Twitter.
Short-term measures of sentiment such as the VIX have reached extreme fear levels, yet others such as the weekly survey managed to bounce on the week. Under the surface there are a couple of key divergences e.g. the contrast in technicals vs fundamentals sentiment – which to me prove highly illustrative of the kind of environment we find ourselves in. Studying the slower moving Euphoriameter, we can draw some clues from the past, and by looking at a late-cycle correction in the late 1990’s one could draw the conclusion that once this correction runs its course it will be promptly back to business…
The key takeaways from this investor sentiment snapshot are:
-“Fundamentals” sentiment remains resilient while “technicals” sentiment is well below average.
-The outlook from here depends powerfully on what happens to fundamentals sentiment.
-Elsewhere, the divergences in the survey charts point to a fall in the VIX, although the VVIX looks to be arguing otherwise.
-The blip down in the Euphoriameter is similar to some of the previous corrections of the past 2 decades, most notable the 1998 correction.
-If this is a late-cycle 1998-style correction it could be “back to business” in short order.
1. Technicals vs Fundamentals: A very interesting set of charts, these two show the mixed feelings of investors with the fundamentals net-bulls remaining in a clear uptrend, while the technicals bull-bear spread remains very low vs history, despite bouncing on the week. This is a telling set of charts
2. Fundamental Sentiment: Honing on on the “fundamentals” sentiment, the view is consistent for bonds and equities, and there is an ever-so-slight, but noticeable turn here. It’s really down to this chart as to how the bond and stock market selloffs playout from here. If fundamentals sentiment holds up or improves it will be onwards and upwards for stocks and down for bonds, and vice versa.
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