Sentiment Snapshot: Fundamentally Sound

Price by itself can very quickly change the tone in markets, and we saw a very clear example of that in the latest weekly sentiment survey on Twitter. With the S&P 500 closing above its 50-day moving average on Friday and apparently completing a so-called “W-shaped recovery”, technicals-sentiment rebounded sharply on the week. Fundamentals sentiment also rebounded and is part of a wider and critical set of data points which help shed light on the outlook for markets.

Indeed, equity fundamentals sentiment is running at very optimistic levels, and while it seems short-term at odds with what we are seeing in the bond survey there are a couple of key supporting points.  For one, economic data has been surprising to the upside, and earnings revisions momentum has been heating up.  Pair this with the backdrop of booming economic confidence, and it certainly paints a picture of supportive fundamentals. 

While some of these indicators may be close to mean reverting, and the business cycle is steadily maturing, it’s a backdrop that in the near term that provides some justification for optimism in markets. And for now, as the technical analysts might say, the trend is your friend.

The main points and conclusions for investors are:

-Overall equity sentiment rebounded strongly on the week.

-Technicals sentiment jumped the most as a couple of key technical signals lit up on Friday.

-Fundamentals sentiment likewise rebounded to optimistic levels and is consistent with what we are seeing in economic sentiment and earnings revisions.

-With the improving technicals set against a backdrop of booming economic confidence, the path seems clear for further upside for equities from here.

1. Equity Sentiment: The latest equity sentiment survey on Twitter showed a sharp rebound in overall net-bullishness with the bull-bear spread rising to 34 from -4 last week. This represents a substantial shift in sentiment, and as I discussed in the Weekly S&P500 #ChartStorm – there is a distinct change in mood from fear to “FOMO” in progress.