From the desk of Willie Delwiche.
Key takeaway: Last week’s volatility unwound some near-term complacency, but there is still plenty of evidence of optimism in the system. Active managers increased their equity exposure and equity ETFs continue to attract inflows at a staggering pace (though certain sectors are starting to see outflows). A more challenging breadth backdrop poses a challenge, but with economic data continuing to surprise to the upside and earnings expectations being revised higher, excessive optimism may be slow to unwind. While risks are elevated from a sentiment perspective, they are not yet being manifested in terms of price.
Sentiment Report Chart of the Week: Large Tech Outflows
Outflows among tech stocks spiked to their highest level since early 2019. The recent spike comes after historic inflows and speculative exuberance took hold of the market. Now the market environment is portrayed by waning trading volume and a sharp decline in call option activity. We may be in the early stages of sustained outflows if sentiment experiences a full unwind.