Key takeaway: Sentiment continues to shift away from optimism and toward pessimism, though as with anything it is not a straight line. Speculative activity is flaring up again this week, the trend in trading volumes and call activity suggests less risk appetite on the part of investors. Optimism unwind is happening in the context of elevated longer-term risks, with earnings growth expectations and valuations at elevated levels. A sideways summer that cools optimism and helps relieve valuation pressures could help pave the way for the resumption of a cyclical rally later this year.
Sentiment Report Chart of the Week: Diminishing Highs
As optimism fades, so does the number of new 52-week highs in the S&P 500. It takes bulls to make a bull market, and from a tactical perspective, our sentiment and breadth measures suggest the bulls have already left for summer vacation.
