Displaying items by tag: sentiment
On the surface, the last few weeks could not have gone better. Vaccinations are up, inflation worries are down, economic indicators are surging, and earnings are great. This has led to a nice relief rally after a rough later winter/early spring. However, the reality is that the summer may again be a tough time for markets. The reason why—a lot of good news is fully priced in, but bad news no longer is. Think about it: if an incredible piece of news came out today, do you think the market would react as strongly as if a very bad piece of news came out? Your gut is probably telling you the latter would have a much stronger response.
FINSUM: We have to agree that the market has gotten a lot of relief from recent news. But really, it would only take one really bad inflation report to send volatility spiking.
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Real estate, especially residential real estate, is one of the sectors that has held up much better under COVID than many expected. With such hefty job losses, many thought early on that the market might suffer seriously. However, home prices have held steady, and in a bullish sign, homebuilders are feeling very confident. The bullishness in the sector seems to stem from a pair of factors—desire for single family homes during COVID, and exceptionally low interest rates. The Homebuilders index rose to a measure of 78 in August, up from 72 in July, setting a record that goes back to 1998.
FINSUM: This is a great sign for homebuilding stocks, and the economy more generally. It is a sign that the American consumer—at least the subset that is in the market for houses—is holding up okay. That said, it is the lower end of the socioeconomic hierarchy than seems to be suffering the most from COVID lockdowns.
Storied research firm Bernstein Research has a recommendation for you, and it is a brave one—buy stocks. The firm says that on a tactical buying basis, it is time for investors to re-enter the market. Bernstein acknowledges that they have no idea when the coronavirus situation will clear up, but that given the general decline in indexes and that fact that sentiment has swung negative, it only makes sense to buy because the market has become too bearish.
FINSUM: We have to give Bernstein credit here for a bold call. Most analyst teams tend to hide or vacillate, but this is a strong call.
If there was ever a stock market indicator that makes us worry, it is when the general public gets very bullish. Nothing seems to yell “stock market peak” like a record setting sentiment number. A new sentiment tracker from Qontigo called ROOF (risk-on/risk-off) just registered a score of 4.8, which is in the 95th percentile historically. The ROOF score hit a low on October 2nd and has been rising since then.
FINSUM: Whenever we see readings like this it just always feels as though a correction is near. The reason why is that since people’s expectations are high, they are easily let down and get fearful/redemptive.