Investment Clock insights

Investor sentiment turning euphoric

Hiroki Hashimoto

31 July 2017

Our investor sentiment moved into the euphoric territory for the first time since the peak of the ‘Trumpflation’ excitement at the start of the year. While investor sentiment started to dip in March as the chances of US reflationary fiscal policies faded, stock markets only took a pause rather than falling before moving higher again (chart).

While it is generally a better time to buy stocks when others are fearful and sell when they are more complacent, markets can melt up and continue to grind higher, especially if it is supported by loose monetary policy. We therefore remain modestly overweight stocks and global high yield given a benign longer term outlook for growth and inflation.

We do not rule out a short-term setback in markets however, and we remain only modestly overweight in stocks. Central banks turning more hawkish than currently expected could trigger a sell-off in stocks for example, which would present us with an opportunity to buy the dip.

Chart: RLAM Investor Sentiment Index and Global Stock Prices

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.