by Connor Darrell
CFA, Assistant Vice President – Head of Investments
A Friday rally (triggered by a very strong April jobs report) helped markets finish the week with modest gains as investors focused heavily on resumed trade talks between the U.S. and China, as well as the Fed policy-setting committee meeting. Markets were slightly disappointed by the news coming from both China and the Fed, and that weighed on sentiment throughout the week despite some positive earnings surprises from major companies.
Too Much, Too Fast?
The S&P 500 has rallied more than 25% from its closing level on December 24, 2018. During that rally, there have been precious few opportunities for those who moved to the sidelines during the market turmoil to jump back into the fray. And while the market has resembled a swinging pendulum over the past eight months, investor sentiment has oscillated just as much. Ned Davis Research tracks a number of data points in an attempt to measure the magnitude of investor sentiment, and recently reported that sentiment has shifted into the realm of “excessive optimism.” Readings such as this are typically viewed as a contrarian bearish signal.
It is rather remarkable for sentiment to move so wildly in just a few short months (that same sentiment indicator was signaling “excessive pessimism” back in December), and investors should be cautious about chasing the rally at this point in time. We believe that at current market levels, a near-term pullback would likely be helpful in resetting investor expectations and would present an opportunity for investors looking to move some cash back into the market.