Persistent Momentum Gets Investors Back In The Mood

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Investors are back in the mood

After more than 9 months, the AAII survey of individual investors shows that more than two-thirds of them are finally optimistic. This ends one of the longest streaks in 30 years.

After the ends of other long streaks with subdued sentiment, the S&P 500 most often carried higher over the next week, but then ran into some issues. Over the next 2-3 months, its returns suffered. They were not only below random, but the median was negative, and the risk/reward was poor.

Persistent Momentum

We've looked at a bunch of momentum type studies. Another will pop up this week, with the S&P 500 rallying 10 out of 11 weeks.

Such persistent rallies have usually been followed by weakness over the next 1-2 weeks, especially from 1980-present. And while the 2-3 months forward returns may seem bullish, many of those bullish cases occurred before the 1980s.

We also looked at:

  • Junk bond buying binge, with a sentiment composite the highest in several years
  • Active investment managers are aggressively positioned
  • Gamma exposure is exploding
  • Smart Money / Dumb Money Confidence is extremely stretched
  • Optimism on oil and gas producers just hit an extreme
  • The Conference Board's LEI is dropping
  • Volatility in Hong Kong is very low
  • What happens when there are few 1% down days in a given year
  • In Mexico, more shares are above their 10-day average than any point in 6 years

The post titled Persistent Momentum Gets Investors Back In The Mood was originally published as on on 2019-12-20.

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