Sentiment Snapshot: A Fundamental Transition Point

In this edition I take you through 5 charts which outline how a possible reassessment of the global macro/fundamental outlook is changing among investors. From a peak in the "bull market in pessimism" to a reflation reassessment, there's signs of change afoot here, and I have a feeling more and more people are going to start talking about this soon.

Firstly, for context, in the Sentiment Snapshot series I look at some of the charts and data from the weekly survey on Twitter, which asks respondents to indicate whether they are bullish or bearish for primarily technical or fundamental rationale. I also add a few other charts from time to time when it helps explore a certain theme.

The key takeaways from the weekly sentiment snapshot are:

-Equity fundamentals sentiment rebounded on the week, technicals sentiment continues to trend up.

-Yet, bond fundamentals sentiment seems to point to even greater pessimism on the outlook.

-A possible peak in pessimism is underway, and it mirrors the rebound in reflation trade positioning.

-The China PMI/copper chart presents some real time evidence that there may be something to this potential transition in fundamentals sentiment.

1. Fundamentals vs Technicals Sentiment: As I was going through the results of the latest weekly survey, I stopped to reflect on these two charts. The first thing that struck me was the obvious bounce in the fundamentals bull/bear spread, but the second thing is that almost missable yet discernible uptrend in technicals net-bulls.

Basically, phase 1 of the rebound is that sort of reluctant bull phase: where sentiment is dragged higher by prices, but only expressed in technicals sentiment, while participants remain bearish on fundamentals. A possible phase 2 is where participants stay bullish on technicals, but begin to capitulate on the bearish fundamentals view...

equity sentiment chart - fundamentals vs technicals

2. Stocks vs Bonds Fundamentals Sentiment: Yet looking at the 4-week average for equity fundamentals sentiment, it's slightly less discernible on this chart, and reminiscent of some of the previous false dawns. It's also standing in contrast to the increasing optimism of bond investors on the fundamentals outlook... which given bonds tend to see the world upside down from equities, means bond investors remain as pessimistic as ever on the macro outlook.

equity vs bond "fundamentals" sentiment indicators

3. The "bull market in pessimism" - is it near an end? But carrying this theme further, I show again this chart from last week, where I mused about a "bull market in pessimism" to describe the pervasive and progressively bearish mood that seemed to permeate the market. This in my view is true whether you look at this or other surveys and a little anecdotal evidence.

This time I've inserted a handy little yellow arrow to imply that it looks like we might have seen a peak in this indicator (is it OK if I ask if we're about to see a bear market in pessimism??). Again, I highlight that the low point in this indicator last year was when the global PMIs peaked.

a bear market in pessimism about to get underway? bears sure will be disappointed...