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Nov 28

Another way to think about the current state of investor sentiment

  • November 28, 2022
  • CWM Investment Team
  • Richard Barrett

Huge week for economic data – with all eyes pointing towards Friday’s labor report. Consensus estimates are calling for +200,000 job growth in Friday’s nonfarm payroll number. For the 54th time, “weak” now means “good”, i.e. labor weakness is the foundation for a Fed pivot on rate policy. Likely a slowdown in labor is underway but we need an UGLY labor report to really get things moving in the other direction. We’ll know Friday at 8:31am EST.

A Fed pivot combined with weak investor sentiment is the recipe we are looking for. Investor sentiment remains weak, as evidenced by the put/call ratio on the VIX volatility contract. Usually a low put/call ratio is indicative of investor bullishness – lots of call buying. But when you are betting on something that goes up when things get volatile (and that’s what the VIX contract is) you have to think in the inverse. Call buying on the VIX is about people betting on fear and volatility. And right now, you have to go back to the very early, very dark and very lonely days of COVID to see the put/call ratio on the VIX as upside downs as it is now. A low put/call ratio on the VIX is signaling a nervous investor community…consistent with elevated levels of bearishness and high cash levels in fund manager surveys.

There’s plenty of fear already priced into the market. Bull/Bear ratios, and elevated cash levels, and “normal” put/call ratios on the broad market, very, very bearish investor behavior are a great contra-indicator to the direction of the market. Sentiment follows price. The only way to get rid of the bearishness is to have things go up in price and sentiment will follow along.

Source:  JonesTrading as of November 21, 2022

Richard Barrett
Chief Investment Officer


Congress Wealth Management LLC (“Congress”) is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). Registration does not imply a certain level of skill or training. For additional information, please visit our website at congresswealth.com or visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Congress’ CRD #310873.

This note is provided for informational purposes only. Congress believes this information to be accurate and reliable but does not warrant it as to completeness or accuracy. This note may include candid statements, opinions and/or forecasts, including those regarding investment strategies and economic and market conditions; however, there is no guarantee that such statements, opinions and/or forecasts will prove to be correct. All such expressions of opinions or forecasts are subject to change without notice. Any projections, targets or estimates are forward looking statements and are based on Congress’ research, analysis, and assumption. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. This note is not a complete analysis of all material facts respecting any issuer, industry or security or of your investment objectives, parameters, needs or financial situation, and therefore is not a sufficient basis alone on which to base an investment decision. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this note. No portion of this note is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Investing entails the risk of loss of principal.

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    Congress Wealth Advisor Solutions (CWAS) is a division of Congress Wealth Management, LLC (CWM), which is a registered investment advisor with the U.S. Securities and Exchange Commission. For additional information, please visit the Investment Adviser Public Disclosure website by searching with CWM's CRD #310873. Investment Advisory services are offered and rendered through CWM. CWM acquired Pinnacle Advisory Group, Inc. (Pinnacle) on April 30, 2021.