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The Bullish Turn in Investor Sentiment
Factors Driving Optimism
Investor sentiment has shifted from bearish to bullish over the past few months, driven by factors such as a strong June jobs report and a cool CPI print. The economic backdrop remains largely the same, with real GDP running near 2% and S&P 500 earnings forecasted to be above $230 for the next 12 months. The perceived downside risks have decreased, and stock prices have risen significantly. The market is now acting as if inflation and the Fed's aggressive stance against it are primarily concerns for 2022. Scares along the way have become less frequent and less severe, leading to a growing belief in a positive economic outcome.
Rising Trader Positioning
Trader positioning is increasingly rising towards "all in" territory, as seen by the National Association of Active Investment Managers weekly equity exposure index reaching above 90. This indicates a high level of bullishness among tactical trading advisors. Deutsche Bank's gauge of aggregate investor positioning also finished last week at an 18-month high. While these readings are within the upper range of typical levels, they indicate sustained optimism in bull markets.
Price Action and Market Stretch
The price action in the market has become somewhat stretched, with the Nasdaq 100 trading 8% above its 50-day moving average. While this is not an immediate sell signal, it suggests a potential pause or pullback in the near future. The pending special rebalancing of the Nasdaq 100 serves as a reminder of the structural imbalance in the market. Certain sectors, such as buzzy retail-trader favorites and heavily shorted stocks, have been experiencing significant gains.
Caution amid Earnings Season
While earnings forecasts for the second quarter appear surmountable and early reports from banks have been positive, the stock market has not responded as expected. This cautious response may be influenced by the seasonally bullish tailwinds coming to an end, as well as the higher bar for fresh news to please the consensus. However, the underlying market trend remains pointed higher, with firm credit conditions, leadership from industrials and consumer cyclicals, and a gradual approach by the Fed.
Remaining Open-Minded
While there are macro warning signs and a higher bar for positive news, it is important to stay open-minded. This article does not suggest an imminent market top, as markets do not always immediately punish investors when they become comfortable. The bullish trend continues until proven otherwise, and Wall Street strategists remain largely on the sidelines. Valuations, although full, were higher in the past with a stronger GDP and corporate earnings. The article concludes by stating that things seem more balanced from here, and it is no longer a sharp edge to bet against a crowded bearish consensus.
A "Hot Take" on the Impact of Investor Sentiment on New Businesses
An Opportune Time for New Ventures
The recent shift in investor sentiment from bearish to bullish presents an opportune time for new businesses to enter the market. With factors such as a strong June jobs report and a favorable CPI print driving this optimism, it indicates a more positive economic outlook. This positive sentiment can create a conducive environment for new ventures to thrive and attract investment.
Benefiting from Rising Trader Positioning
The increasing bullishness among tactical trading advisors, as evidenced by rising trader positioning, could work in favor of new businesses seeking funding. Higher investor optimism often translates to a higher willingness to take risks and explore new opportunities. This increased appetite for risk can lead to greater interest in investing in innovative and disruptive startups.
Capitalizing on Market Trends and Stretch
The market's current stretch, with certain sectors experiencing significant gains, presents a unique opportunity for new businesses operating in those sectors. Buzzy retail-trader favorites and heavily shorted stocks have seen substantial growth, indicating market interest and potential demand. By aligning their offerings with these trends, new businesses can position themselves strategically and attract investor attention.
Navigating Earnings Season with Caution
While cautious market responses during earnings season may pose challenges, new businesses can leverage the underlying positive market trend. By demonstrating firm credit conditions, adopting a gradual approach, and aligning with sectors showing leadership, such as industrials and consumer cyclicals, they can mitigate potential hurdles and gain investor confidence.
Remaining Agile and Open-Minded
To succeed in this evolving market environment, new businesses must remain agile and open-minded. While there are macro warning signs and a higher bar for positive news, it is essential to stay adaptable and responsive to changing investor sentiment. By carefully monitoring market trends, staying informed about investor positioning, and demonstrating a strong value proposition, new ventures can position themselves for success.
In conclusion, the bullish turn in investor sentiment presents a favorable landscape for new businesses. By leveraging rising trader positioning, capitalizing on market trends, and navigating earnings season with caution, new ventures can attract investment and thrive in the current market environment. Remaining agile and open-minded will be key to seizing opportunities and mitigating potential risks.
Article First Published at: https://www.cnbc.com/2023/07/15/collective-embrace-of-soft-landing-economic-scenario-extends-2023-rally-after-welcome-drop-in-cpi.html.svg)
