Key takeaway: Amid the economic optimism that is seen in surveys and magazine covers, the stock market is experiencing an unwinding in speculative excesses that has just begun. This shift in risk appetite makes a healthy sentiment reset like we saw in March a less likely outcome this time around. More probably is that we are moving from excessive optimism to some meaningful degree of pessimism. This is the area of the sentiment curve when price is most vulnerable to correction. With upside economic surprises waning and near-term breadth trends more mixed, the choppy environment of the past few weeks could not only persist, but even intensify.
Sentiment Report Chart of the Week: Magazine Covers
Like headlines, magazine covers can be more anecdote than an indicator. But they do give a sense of the public mood and the contrast between what appeared on the cover of The New Yorker in March 2020 (an empty Grand Central Station) and this week (New Yorkers emerging from the darkness and into the city bathed in blue skies and sunshine) could not be starker. As investors, we don’t want to overlook this shift from pessimism and despair to ebullient optimism.
