14 November 2016
Posted in
Special research
Investors celebrate the surprising outcome of the US election. Investors’ sentiment for the US equity market has reached the highest level since 2010. In the past, comparable sentiment levels indicated that the US market is temporarily overbought.
As pollsters, politicians and the media are still trying to regain countenance after being choked up by Trump's stunning presidential victory; investors rush to buy stocks. The S&P 500 stock index rose more than 1.8%. At the same time, the sentix Sentiment for US equities (S&P 500) climbs from previously -0.02 points to +0.44 points. This week’s sentiment reading is the highest value since 2010 and one of the strongest one week surges ever recorded (refer to chart). Expectations on large-scale fiscal stimulus packages and tax cuts for businesses inspire investors to dream of rising stock prices and a prolonging of the since 2009 existing bull market.
Rising share prices are indeed possible over the long run, as investors strategic confidence in owning US shares keeps up with rising sentiment values. Moreover, bulls can bank on more investors joining the party as undecided (e.g. neutral) investors are still plentiful available. Although there may be numerous reasons for a bullish trend continuation, due to current sentiment extreme, the market may take a break before ascending to new all-time highs. In the past, comparable levels of optimism lead to a consolidation within two weeks after the signal.
Consequently, we expect that the US market must digest the current sentiment extreme first, before advancing to new highs.
The sentix Sentiment indices, which capture investors’ 1-month expectations for a broad range of financial markets, are calculated on a weekly basis since 2001 as part of the sentix Global Investor Survey. The sentix sentiment reflects human emotions – between greed and fear – of market participants. Negative sentiment extremes are usually a straight indication for rising prices. High optimism, in contrast, may be a warning signal for an upcoming market consolidation. A sentiment divergence mostly indicates more important turning points.
The latest sentix Global Investor Survey was conducted from 10-November to 12-November-2016. 1037 individual and institutional investors took part in it.