Key Takeaway: The risks associated with excessive optimism are no longer present as bulls are in full retreat. Recent spikes in volatility and downside pressure on price have ushered in an atmosphere of caution.Though we haven’t reached levels of fear or pessimism indicative of a complete unwind, active equity managers reducing their exposure to 55% and the II bull-bear spread at its lowest level since May 2020 speaks to a healthy reset. Relentless equity ETF inflows, elevated valuations, and slowing earnings growth all point to increased risks over longer timeframes. However, we are seeing early signs of opportunity re-entering the market from a tactical and cyclical perspective.
Sentiment Report Chart of the Week: Fade the flows
Equity ETF inflows continued in September (16 months in a row) while commodities remain an unloved asset class from an ETF flow perspective. The equity space certainly looks crowded from a longer-term perspective. Weekly data, however, actually shows equity mutual funds and ETFs seeing outflows. This is evidence of some near-term fear on the part of equity investors and is consistent with the sentiment unwind being seen elsewhere.
