Sentiment Snapshot: Turning Tides

So far, the recovery from the February correction is proving *not* to be a “v-shaped recovery”, and rather seems to be in a process of undertaking a classic “double-dip recovery”. Headline risk has certainly been a driver, and at this point noise, sentiment, and signals are more intertwined than ever. So it’s time to take a snapshot of where sentiment is sitting across a number of key indicators including the weekly survey on Twitter.

The high-level message from the equity and bond outlook and positioning surveys on Twitter is that of a gradual and material shift in sentiment from the extremes around the turn of the year. The sentiment is immensely susceptible to being swayed simply by price, yet it can reflect a change in mood, and the perceptions around fundamentals can yield important insights.

In this respect, at once the charts show both a market that has undertaken a typical reaction to a correction in prices, while also showing scope for a further shakeout in sentiment and positioning. This is set against a backdrop of a steady shift in the perception of fundamentals. So it’s fair to say the risks are *not* one-sided at this point.

The bullet point conclusions and observations on sentiment and positioning are:

Equity and bond sentiment have taken a turn since the extremes seen earlier this year.

Although “technicals” sentiment remains soft for equities, the latest results show a slump in “fundamentals” sentiment (which had previously been relatively resilient).

Bond market “fundamentals” sentiment has already rolled over.

Positioning indicators show some reaction, yet also show scope for a further shakeout.

It’s a classic reaction across sentiment and positioning to a market correction, but at this point, the shakeout does not look decisive.

1. Equity vs Bond Sentiment: The latest survey results show another leg down in equity sentiment (and up in bond sentiment – bond sentiment is inverted as economic logic and experience dictates that the two should roughly be inversely correlated). It is an interesting series of moves, particularly since both were coming from fairly extreme readings around the turn of the year.