Sentiment LOL

Sentiment LOL 1

Consumer Sentiment vs. Stock Market Returns
Sentiment LOL 2Sentiment LOL 3


I am not a fan of most Sentiment readings. I don’t mean their current levels, but rather the way the entire complex gets used. This is not a new belief, but rather, a long-standing pet peeve.

Sentiment readings can be fantastic contrary indicators, but they are rarely actionable, and then only when at extremes.

For example, if you want to use the Consumer Index as Buy signal, it has a good track record for the 5 or 6 signals it has generated over the past 50 years. I guess you could buy out of the money 1-year call options when the level drops below 60 (5 signals: 1975, 1980, 2008, 2011, and 2022) or 65 (1 signal: 1990). It’s good for a trade, but not much else.

There are a few people who can do this well, but they are few and far between.



See also:
Consumer Confidence and Stock Returns (Journal of Portfolio Management, 2003)


Big Up Big Down Days (May 5, 2022)

Too Many Bears (May 3, 2022)

One-Sided Markets (September 29, 2021)

Black Friday #Fails


JPM Guide to Markets, 2Q 2022, March 31, 2022


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