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Sentiment Snapshot: Of Two Minds

The latest weekly survey of investor positioning and views on Twitter showed a slight rebound in overall net bullishness, but as with the action in the markets, it appears indecisiveness is a key theme. Indeed the equity investor surveys showed a continuation of the starkly different views on fundamentals vs technicals - presumably this represents investors holding on to the solid macro backdrop vs the confronting correction in prices.

But in the latest set of responses to the surveys one thing that really is starting to stick out to me is the change in views toward the bond market. Indeed there has been a notable turnaround in the perception of bond investors on the fundamentals (in contrast to equity investors), and the movement in overall net-bullish sentiment for bonds looks to be highlighting a risk of a big rebound in bond yields.

Things to think about from this review of investor sentiment are:

-There remains a tension between fundamental vs technical driven sentiment.

-The other tension is the divergence between equity market fundamental sentiment and bond market fundamental sentiment, which has turned around.

-Indeed, the bond survey looks to be highlighting the risks of a more protracted reversal in yields.

-On equity sentiment the main takeaway seems to be that there is this indecisiveness where investors are still holding on to the positive macro/earnings outlook vs the noise/news and downside risks.

1. Fundamental vs Technical Sentiment: Not a huge change on the week, but there's still a lot of information in this pair of charts. Fundamentals sentiment remains stubbornly high, albeit it does look to be slowly rolling over. Technicals sentiment on the other hand only managed a partial rebound - and as I mentioned at the start reflects what appears to be a sort of indecisiveness in the markets: on the one hand fundamentals look good, but on the other hand there's a few things to worry about.

2. Fundamental View for Stocks vs Bonds: Focusing in on the fundamentals sentiment, this chart shows the trends in bonds vs equities (using a 4-week smoothing window to accentuate the signal vs the noise). It hardly needs any comment - just look at that gap. Bond investor perceptions on the fundamentals has fairly decisively turned around from December, and yet equity investor perceptions remain relatively sanguine.

3. Bond Market Sentiment: So are the bond guys onto something? The overall net-bullish sentiment reading for the bond market survey shows again that clear turnaround since December, and if you took that chart literally it's almost as if they are implying/predicting a rally in bonds that could bring US 10-year treasury yields back down to 2.5% or below. I don't think this is something many people are thinking about...

4. The Euphoriameter: Back to equity market sentiment, the final reading for The Euphoriameter puts it precisely at the same level as May 2017, so again the hype of late 2017 has been completely unwound. The question of course is now down to "is this enough of an unwind to open up further upside?" In the past there has been a few instances when there has been a mid-cycle reset in this indicator of a short-lived and relatively minor magnitude, but at other times a rolling over like what we're seeing now has been the start of a bear market or more sizable consolidation. So it's certainly one to keep front of mind.

5. US Equity Index Futures Positioning: Final chart in this session shows a similar picture to the euphoriameter, this time looking at actual net-speculative futures positioning - aggregated across US Equity Index Futures markets. Interestingly there has been a similar pullback or unwinding of the crowded net-longs that we previously saw, but likewise there are still hold-outs. It seems to echo what we saw in the first pair of charts where investors are still holding on to the positive macro/earnings outlook vs the noise/news and sentiment unwind.

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