The current state of stock market sentiment
Key points:
- While breadth, price action, and interest rates are currently suggesting potential trouble, investor sentiment remains a positive factor
- Historically, sentiment becomes more bullish as the stock market moves higher and ultimately tops out, and vice versa
- Several of our primary sentiment indicators presently fail to show even the slightest hint of investor euphoria
- Below we highlight the recent status of the Sentiment Cycle Composite, Panic/Euphoria Model, and AAII Bull/Bear indicators
Sentiment is one factor that influences stock prices
While we place great emphasis on sentiment when analyzing the stock market, it is one of many factors that ultimately influence stock prices. The primary factors (in no particular order) include:
- Valuation
- Price Action
- Inflation
- Interest Rates
- Economic Trends
- Sentiment
- Breadth
- Seasonality
- Insider Activity
Currently, breadth, interest rates, seasonality, and, to some extent, price action are exerting unfavorable pressure on stock prices. However, in this note, we will focus solely on the "state of sentiment" as if it were a standalone factor.
The Sentiment Cycle Composite remains firmly in favorable territory
In assessing