From the desk of Willie Delwiche.
Key Takeaway: We have seen some evidence of fear on a shorter-term basis, but still plenty of optimism (and risk) from a longer-term positioning perspective. If we had to sum up the current sentiment backdrop with one data point it would be the AAII survey that shows even split between bears and bulls. Sentiment is neither here nor there and that leaves the door open to a more complete unwinding in optimism at a time of year when the market tends to be filled with holiday cheer. Combine that with increasing headwinds from deteriorating breadth and the trend in earnings revisions turning lower, and the sentiment shifts of 2021 look increasingly incomplete as we move toward 2022.
The stock market tends to do well when analysts are too pessimistic and have to chase reality higher by raising their earnings estimates. That had been the case coming off of the 2020 lows. Now, the rug is being pulled from underneath those elevated estimates and the revision trend has turned lower. The market usually struggles when analysts are shown to be overly optimistic.