The latest weekly sentiment/positioning survey on Twitter revealed a continuation of some very interesting trends and a new record in bearish sentiment on bonds and a highest-equal bullish reading for stocks. If you thought that was interesting, the detail only gets better.
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For a copy of the survey historical data click here. Note, the survey asks respondents if they are bullish or bearish for primarily "fundamentals" or "technicals" rationale.
There has been a clear trend to ever more bullish sentiment on equities, and ever more bearish sentiment on bonds. Much of this has been driven by a reassessment of the fundamentals (see chart 2), where there has been a consistent move in equity and bond sentiment - consistent because better equity fundamentals (macroeconomic) are typically bearish for bonds.
The main takeaways from the latest survey results are:
-Bond bears are out in force (most extreme bearish sentiment on record), and equity bullishness is at the highest-equal point of the survey history.
-Much of the move in bond and equity sentiment has been driven by a substantial reassessment of the outlook for the fundamentals; this lines up with the better macro data we have observed.
-The bull run in equities has been driven by the reassessment of the fundamentals, and at this point expectations are very high, and vulnerable to disappointment.
1. Bonds vs Equities: The first chart shows bond and equity net-bullish sentiment (bonds is inverted because bonds typically are negatively correlated with stocks), and there has been a consistent trend across the past year. The latest results have bond net-bulls at the lowest on record, and equities at the highest-equal reading. These kind of extremes are worth paying close attention to.
2. Fundamentals: A good follow-on chart, shows the smoothed net-bullish "fundamentals" sentiment. The reassessment of the fundamentals since the low point in June last year has been simply profound. The fact that it is consistent across stocks and bonds, and is also largely consistent with the data we track showing improving momentum in the global economy suggests there is probably sound basis for this outlook - even if it may have reached extreme levels.
3. Equity Fundamentals vs Technicals: Zeroing in on the equity survey, you can see that the bull run in the S&P500 of the past 6 months has been driven almost exclusively by the more optimistic outlook on the fundamentals. This is unprecedented and it's hard to make a call on the next steps, but one thing is certain: expectations on the fundamentals outlook are very high. Best hope those expectations get met!
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Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends.
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Head of Research
Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.