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Sentiment Is Weak, but What’s Next for Markets?

April 08, 2025

Time to Read: 2 minutes

According to AA Investor Intelligence, which conducts sentiment surveys, the recent bull/bear ratio has declined to ~-41, its 13th lowest point since 1987. The ratio is calculated by subtracting the number of bullish respondents by the number of bearish respondents, and is an important sentiment indictor used to gauge the overall mood of the market.

Lately, concerns about global trade, slowing economic growth and persistent inflation have weighed on sentiment, resulting in significant volatility and a rapid market selloff. Additionally, in a recent press conference, Federal Reserve Chair Jerome Powell was more hawkish than expected, causing investors to worry that the Fed will cut interest rates too late to provide sufficient support to the economy.

While heightened uncertainty around tariffs has led to a risk-off environment, depressed sentiment levels can present strategic buying opportunities for longer-term investors. S&P 500 returns historically average 15% and 32%, respectively, in the 12- and 24-months following instances of depressed sentiment. Despite the sour mood in markets, we recommend you stay invested to secure your portfolio’s future performance.

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Cuts Are Coming

Last Friday, Federal Reserve Chair Jerome Powell described a shift in the balance of employment and inflation risks, and the market rallied on the news. For us, nothing has changed. We have been closely monitoring the labor market and indicators of inflation, and we continue to expect two rate cuts this year.

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Higher Margins Drive Robust Earnings

Second quarter earnings season is winding down. Nearly all companies have reported, and the majority beat expectations as margin estimates continue to rise.

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Earnings Season Wrapping Up on a High Note

Second quarter earnings season is winding down, but earnings are up, and better than expected. Despite some potentially concerning signals from the real economy, including muted job gains, and possible seasonal volatility, we remain constructive on equities. A positive second quarter earnings season strengthens our conviction.

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Mixed Job Market

Last week the market received mixed messages about the condition of the labor market. Nonfarm payrolls came in lower than expected, and the previous two months of data were revised sharply lower. Yet initial jobless claims were also lower, and the unemployment rate remains in range. We believe the U.S. economy can still deliver modest growth this year.

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