Key takeaway: Even with some indicators backing away from extreme optimism, sentiment remains on the risk side of the scale. Optimism can be slow to unwind as hopeful investors typically hold on until price changes force their hand and compel action. Optimism fades slowly and then all at once (whereas, fear, when it emerges, spikes quickly, and then slowly fades). The decline in consensus bulls and the emerging pattern of equity market exposure among active managers echoes a waning in risk appetite that can be seen in equity and options market trading volume. Longer-term sentiment indicators continue to point to an elevated risk environment.
Sentiment Report Chart of the Week: “Less is More”
Our risk-on and risk-off indexes highlight the indecision that the current market environment embodies. Both indexes continue to chop sideways while optimism lingers at elevated levels and bears are nowhere to be seen. Mixed signals seem to be the rule not the exception. Without a decisive risk on signal, a “less is more” attitude toward market participation remains appropriate.
