News & Research

While the US market has hit multiple record highs in 2021, investor sentiment thus far has been more negative than positive.

Investors remain worried that the combination of inflationary pressures and COVID-19 variants will cancel the happy ending for the economy that markets have been hoping for.

Investor sentiment declined from recent highs in all major regions last week, with investors in Developed Europe curbing the recent surge in enthusiasm and rejoining others in the ambivalence of neutral zone.

As purveyors of risk models, we spend much of our time immersed in the arcana of causes and implications of volatility. But we are often asked why investors should care about volatility (aka risk) and, in particular, if higher volatility drives higher returns, why is low volatility viewed as a positive market characteristic? Below, we illustrate the connection between volatility and investors’ perceptions of potential capital losses, which may color their decision to invest.

Global investor sentiment remains neutral and has stayed in a very tight range for two weeks now, seemingly lacking direction.

Sentiment among US, European and global developed-market investors remained neutral, moving in a tight range from the previous week, while Asia ex-Japan investors pared their bullish sentiment to a somewhat less overly optimistic mood.

For the past few weeks, declining volatility has been the main driver of improvement in sentiment. With volatility now back to pre-pandemic levels in most markets we track, there does not seem much downside potential from here, especially with the seasonally more emotional summer months ahead.

Sentiment continued to improve last week across all markets we track except China, which saw a small decline (albeit from a very high base). US investors recorded the largest increase in sentiment, crossing over into bullish territory.

Over time, market-moving events generate either more need or want for portfolio rebalancing. Using each metric’s contribution to the overall market ROOF scores, we can track the motivational nature of the aggregate market move each day (i.e., are they driven by want or need?).

Investor sentiment continues to hoover within the neutral zone, held back by high valuations, and supported by a growing sense that inflation fears may have been just that, a temporary illusion caused by an abnormally low base.

Investor sentiment continues to hoover within the neutral zone, held back by high valuations, and supported by a growing sense that inflation fears may have been just that, a temporary illusion caused by an abnormally low base.

Investor sentiment declined sharply again last week in all markets we track except China. US investors regained their leadership role as the most negative investors with sentiment there falling deeper into bearish territory.