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Early Thursday morning, investors were feeling pretty good about the trading week. At that point, the S&P 500 was up 1% on the day and about 2.7% week-to-date, and the index had actually just pushed back above its 200-day moving average.
There was nothing we could identify in the news that caused the S&P to peak around 10 AM ET, but from that point through the closing bell on Friday, the index fell 5.3% in basically as straight of a line lower that you can draw.
Fed Chair Powell did, however, make comments in a speech at the IMF mid-day Thursday where he confirmed that a 50 basis point hike was “on the table” for the May meeting. Markets have been pricing high odds for 50 bps hikes for some time now, but Powell’s comments basically cemented them (for now).
The Powell Fed is known for its jawboning and transparency when it comes to the path for rates. The chart below of equities and fixed income in 2022 tells you what these two asset classes currently think of that jawboning:
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After peaking at 32.8% two weeks ago, bullish sentiment continues to roll over as the S&P 500 has erased some of the March gains this week. After this week’s decline of 7.2 percentage points in bullish sentiment, less than a quarter of respondents reported as bullish. While low, that is still a few percentage points above the weaker levels from February.
Bearish sentiment in turn rose 13.9 percentage points which was the biggest one-week uptick since August 2019 when it rose 24.14 percentage points. At 41.4%, bearish sentiment is now at the highest level since the week of March 17th. That is an elevated reading and a big move week over week, but it is also well off recent highs from the past few months that were more than 10 percentage points higher.
The bull-bear spread tipped into positive territory for the first time in 2022 last week, but the big inverse moves between bulls and bears erased much of the past few weeks’ move. The spread is down to -16.7 which is still 13.6 points above the late February low of -30.3.
The big pickup in the number of respondents reporting as bearish didn’t entirely come from the bullish camp. Neutral sentiment also shed a significant amount falling from 40.6% last week to 33.9%. That is essentially mean reversion as neutral sentiment now sits only a couple of points above the historical average. Click here to view Bespoke’s premium membership options.