Sentiment Drops Ahead of the Fed

Sep 21, 2023

The latest weekly sentiment surveys would have missed any reaction to the FOMC yesterday due to timing of data collection. However, leading up to equities’ drop in reaction to a hawkish Fed, sentiment was already headed in a pessimistic direction. As shown below, the American Association of Individual Investors weekly sentiment survey saw bullish sentiment drop for a second week in a row last week. At 31.3% bullish, sentiment is down to the lowest level since June.

Bearish sentiment rose from 29.2% up to 34.6%.  That is only the highest reading in a month given neutral sentiment picked up a larger share of losses to bullish sentiment the previous week.

While the increase in respondents reporting as bearish has been somewhat tame, the inverse moves this week have resulted in the bull-bear spread dipping back into negative territory. That means there are currently more investors reporting as bearish than bullish.

Below, we take a rolling average of the past year’s readings in bullish and bearish sentiment. By this measure, bears again hold the upper hand having averaged 38.0% in the past year whereas bulls have averaged 30.4%.  In the case of bullish sentiment, that remains a historically low reading as the average has generally trended lower over the past two decades while the reverse is true of bearish sentiment. That being said, there has been some reversion over the past few months with bearish sentiment falling and bullish sentiment rising towards more historically normal readings. In other words, over time, sentiment has taken a structurally higher bearish tilt, and 2022 saw that nearly reach a pinnacle.  This year, though, has seen somewhat more normal but still elevated sentiment.

Another Powell Fed Day Sees Stocks Tank Into the Close

Sep 20, 2023

In Monday’s Chart of the Day, we looked at how the stock market typically performs on Fed Days.  Below is one of the charts highlighted showing the average intraday path that the S&P 500 has taken on Fed Days over the past year (8 Fed Days).  As you can see, investors really seem to dislike what Chair Powell has to say, as the market has trended straight down in the final hour of trading once his press conferences come to an end.

Today’s action was no different.  It’s actually pretty incredible how closely today’s action tracked the normal Powell Fed-Day pattern.  Take a look at the chart below.  The red line shows the S&P 500’s path today, while the blue line shows the average path that the S&P took over the prior eight Fed Days.  Maybe Powell can change things up next time (unless this is the action he wants to see).