Market sentiment has made a huge reversal. Here’s why and what it means going forward
Something unusual happened in the past few weeks.
TL;DR
- Ned Davis Research's Daily Trading Sentiment Composite moved from extreme pessimism to optimism in less than three weeks.
- The S&P 500 has risen over 1.7% in the past month and reached new intraday and closing records.
- Reasons for the sentiment reversal include a retail comeback, increased institutional bullishness, and a significant drop in the VIX.
- A sentiment reading above 60 indicates excessive optimism, and the current reading is 63.3.
- Historically, the S&P 500 averages a 4.93% loss when sentiment indicators enter excessive optimism territory.
- Major market peaks often occur at higher sentiment readings, typically in the upper 70s or 80s.