Market Update August 2022 – Poor Sentiment to the Rescue???
CHART OF INTEREST
The economy, earnings, politics, etc… The condition of fundamentals such as these does matter, but often times it’s the sentiment of investors that shapes the responses within the capital markets. After all, investing reflects how investors judge the probability and impact of future outcomes, which is a form of sentiment. In one era, rising prices may be judged as a sign of economic strength. In another regime, rising rates may be seen as an impediment to economic strength. And each side can be correct given a broader context.
One common gauge of sentiment is the American Association of Individual Investors (AAII) Investor Sentiment survey (as seen below), which tracks net sentiment by looking at the condition of bullish sentiment less bearish sentiment. And, in many cases, gauges such as this can be used to identify trends to be followed. But, trends can also signal reversals when extremes are reached.
The chart below tracks the net reading between bulls and bears from January 2000 through August 11, 2022. The red line represents the net reading of the 30 day average of bulls minus bears, superimposed over the daily readings in grey. The black line through the red is the middle ground with equal readings from the bulls and the bears.
Not surprisingly, with this year’s decline in equity markets, the negative net reading has certainly been one of a bearish tone. Yet, in the context of this time period, the net reading is looking as though it may have recently reached extremes in net-bearish sentiment coinciding with the lows last seen in March of 2009 (green line). Could this be a signal for a reversal in the equity markets?
With the recent equity market reversal off of the June 2022 low, sentiment amongst individuals looks to be improving and possibly pointing to further gains. Add to that evidence of brightening institutional investor sentiment and 2022 may yet see further gains. But for now, further improving sentiment may be a welcomed condition to help combat the historically choppy months of September and October, not to mention elections in November. And, if the market does indeed “climb a wall of worry”, 2022 may play out favorably to the surprise of many.
Chief Investment Officer
Quantitative Advantage, LLC (QA) is an investment advisor registered with the Securities and Exchange Commission and is a limited liability company organized in the state of Minnesota. Registration of an investment advisor does not imply any specific level of skill or training. QA Wealth Management is a division of QA.
This information has been prepared by QA, is provided for informational purposes only and does not constitute investment advice. It contains general information, is not suitable for everyone and is subject to change without notice. The views and opinions expressed in this report are solely those of QA and are current as of the date of writing. While the content is provided in good faith to provide a general commentary of current market factors and conditions, the views and opinions expressed are limited in scope and QA makes no representation or warranty as to the accuracy or completeness of the information provided. Past performance of the global investment markets is not a guarantee of future results.
The index performance results referenced in this report represent past performance and are not a guarantee of future performance. Investment returns and principal value will fluctuate and are subject to market volatility, so that a client’s investment, when sold, may be worth more or less than the original cost. Indices are unmanaged and investors cannot invest directly in an index. An index’s performance does not reflect the deduction of transaction costs, management fees, or other costs which would reduce returns.
The S&P 500 Index is a stock market index based on the market capitalizations of 500 large companies having common stock listed on the New York Stock Exchange or the NASDAQ Stock Market. For more information regarding this index, please refer to the sponsor website at www.standardandpoors.com. SPDR S&P 500 Index ETF Trust (SPY) is designed to track the S&P 500 Index.
For more information about QA, its investment programs, fees, and the risks associated with the investments which QA may make or recommend, please review QA’s Form ADV disclosure brochure, which is available at www.QAwealthmanagement.com, or upon request from QA’s compliance department by telephone at 866-767-8007, by writing to 10400 Yellow Circle Drive, Suite 303, Minnetonka, MN 55343, or by email to compliance@QAwealthmanagement.com. Please review the Form ADV disclosure brochure carefully before or at the time you enter into an agreement with QA.