Investors are becoming more optimistic about stocks than bonds, just as the Federal Reserve begins cutting interest rates, according to SentimenTrader's Jason Goepfert.
Data shows that this disparity doesn't actually provide a clear signal for the S&P 500 .SPX beyond a near-term decline. But the benchmark 10-year Treasury note US10YT=RR showed a strong tendency to rally three to six months after stock sentiment outpaced bond sentiment, Goepfert says.
Trading usually follows a pattern in which cyclical and large cap stocks tended to show increasingly poor average returns before increasingly positive ones. Small cap stocks surprisingly showed relatively positive performance across all time frames even as other stocks struggled, Goepfert says.