From the desk of Willie Delwiche.
Key Takeaway: Investor sentiment looks washed out - at least for now. Investor sentiment was a headwind early in 2021 but more recently had been a neutral market influence from our weight of the evidence perspective. Now, with the indicators pointing toward fear and pessimism and equity inflows sputtering to start 2022, it looks like sentiment now is a tailwind for equities. How long that persists remains to be seen. Seeing pessimism and fear remaining elevated even as if stocks stop going down could help sow the seeds for an unloved rally. Longer-term, there remain imbalances from a valuation and asset allocation perspective that remain unresolved.
Sentiment Report Chart of the Week: Equity Fund Inflows Sputter
Equity ETFs saw their 20th consecutive month of inflows in January, but last month’s inflows were the smallest since October 2020 and a sharp slowdown from a record-setting December (from $90B to $15B). January tends to be one of the weaker months when it comes to inflows, so whether this is a breather or the beginning of a new trend remains to be seen. Elsewhere, bond funds had their first month of outflows since March 2020 while commodity funds (which experienced net outflows for 2021 as a whole) had their largest inflows since May.
