Personal Wealth Management / Behavioral Finance

What We Think Fear and Greed’s Tug of War Says About Sentiment Today

What does sentiment’s recent flip-flopping mean for investors?

Editors’ Note: MarketMinder Europe does not make individual security recommendations. The below simply represent a broader theme we wish to highlight.

What to make of investor sentiment today? After some areas of market froth appeared to signal the return of investor ebullience according to some financial analysts we follow mere weeks ago, the COVID variant Omicron’s emergence seemingly wiped away much of that renewed enthusiasm. This flipping-and-flopping in sentiment may bewilder those following closely. But to us, sentiment’s recent seesawing highlights the importance of not overthinking near-term swings—moods can change quickly, and our research shows they don’t dictate where stocks head next. We think investors benefit from taking a step back and viewing longer-term trends.

Before Omicron entered financial headlines, some pockets of investor euphoria from early this year returned to the forefront of financial publications we follow. Interest in electric vehicle (EV) companies skyrocketed as investors hunted for the next Tesla, the biggest EV maker by market capitalisation (a measure of a firm’s size calculated by multiplying its share price by the number of shares outstanding).[i] We think that interest at least partially explains why EV startup Lucid’s market cap topped American automakers Ford’s and General Motors’ despite just starting vehicle production in September.[ii] In mid-November, another EV startup, Rivian, hit a market cap of around $153 billion (£115.6 billion)—exceeding German automaker Volkswagen—making it the largest US company with zero revenue.[iii] Enthusiasm for cryptocurrencies resurged, too. After a summertime slump, bitcoin rebounded in the fall, with prices nearing $70,000 in November.[iv] After that autumn climb, we observed some crypto analysts predicting bitcoin will reach $100,000 by yearend (for reference, its price is $56,447 as of 2 December).[v] That zeal appears to have spread to anything seemingly attached to cryptocurrencies, with venture capitalists globally pouring more money into crypto and blockchain start-ups this year.[vi] These developments had some investors starting to see froth—much like the pockets of excess that existed early this year in special-purpose acquisition companies (SPACs), which are holding companies created for the sole purpose of bringing privately held firms to market.

But then came the Omicron variant. Scientists in South Africa announced their discovery on Thursday, 25 November prompting countries including the UK, Israel and Singapore to restrict travel from the southern African region. Whilst that day’s market reaction was limited—likely due to US markets being closed for the Thanksgiving holiday—negative volatility was widespread on Friday, and global stocks fell -2.3%.[vii] That market negativity persisted into this week, sparking a flurry of warnings and questions in many financial publications we follow: Will harsh COVID restrictions—or even lockdowns—come back? Are existing vaccines effective against the latest variant? Are monetary policymakers pursuing actions that may hinder economic recoveries?

In our view, these apparent vacillations in investors’ moods recently suggest sentiment is neither full-on frothy nor panic-stricken. Though we observed euphoria in some narrow segments of the market early in 2021, our research suggests pockets of froth aren’t unusual during bull markets (periods of generally rising equity markets) and don’t automatically signal market peaks. As an example, we can use an American exchange-traded investment fund (ETF) that tracks a SPAC index as a proxy for SPACs’ performance this year. From the start of the year to mid-February, this SPAC ETF rose 26.6% in US dollars—far outpacing the broader US equity index S&P 500’s 4.7% in dollars over the same time period.[viii] Yet two weeks later, the SPAC ETF had fallen -20.1% in dollars, whilst the S&P 500 was just -4.1% lower.[ix] For the year through mid-November, the SPAC ETF is down -5.6% in dollars, yet the S&P 500 is up 24.8%.[x] If euphoria had infected stocks broadly, we think it stands to reason that broad equity indexes would have fallen alongside the deflated categories. Yet that implosion remained largely confined to a niche corner of the market.   

Bitcoin’s resurgence strikes us as another sign euphoria isn’t here, counterintuitive as that may be. Early this year, when bitcoin spiked, we thought the enthusiasm seemed tied to hype that cryptocurrencies were going mainstream as more companies added them to reserves and started taking them as payment.[xi] Now, we have seen some crypto enthusiasts argue bitcoin is attractive due to its purported ability to serve as an inflation hedge—that is, an investment that maintains its purchasing power or appreciates through periods of rising prices. In our view, it is telling the impetus to own crypto now stems from apparent fear, not cheery anticipation about their future as money.   

This tug-of-war between optimists and pessimists suggests to us neither greed nor fear dominates today. A host of sentiment metrics we track suggest moods have generally trended more optimistic lately: Initial public offering (IPO) activity has accelerated; consumer and fund manager sentiment surveys have perked up; and many financial market experts we follow have mildly bullish expectations for 2022 (and, more notably, few major strategists whose work we monitor project negative returns).[xii] But the recent resurgence in scepticism suggests to us that sentiment isn’t overextended. In our view, sentiment can signal an equity market turning point when nearly everyone is of one mind—and given sentiment’s recent vacillations, that doesn’t seem like the case today.

[i] “What Are the Biggest EV Makers by Market Capitalization?” Ronald Marconi, TheStreet, 17/11/2021.

[ii] “Lucid’s Market Cap Is Now Bigger Than Ford and GM,” Esha Dey, Bloomberg, 16/11/2021. Accessed via Yahoo! Finance.

[iii] “Rivian Leaps Past Volkswagen’s Valuation as EV Mania Rages,” Esha Dey, Bloomberg, 16/11/2021. Accessed via Yahoo! Finance.

[iv] Source:, as of 3/12/2021. Bitcoin closing price, 8/5/2021 – 8/11/2021.

[v] Ibid. and “Suddenly, a Bitcoin Move to $100K Doesn't Seem So Farfetched,” Javier E. David, Yahoo! Finance, 21/10/2021.

[vi] “Investors Are Piling Into Crypto Startups—Just Not in China,” Lizette Chapman, Bloomberg, 1/12/2021. Accessed via Yahoo! Finance.

[vii] Source: FactSet, as of 3/12/2021. MSCI World Index returns with net dividends, in GBP, 25/11/2021 – 26/11/2021.

[viii] Source: Refinitiv and FactSet, as of 29/11/2021. IPOX SPAC ETF price return and S&P 500 price return, 31/12/2020 – 17/2/2021. Presented in US dollars. Currency fluctuations between the dollar and pound may result in higher or lower investment returns.

[ix] Ibid. IPOX SPAC ETF price return and S&P 500 price return, 17/2/2021 – 4/3/2021. Presented in US dollars. Currency fluctuations between the dollar and pound may result in higher or lower investment returns.

[x] Ibid. IPOX SPAC ETF price return and S&P 500 price return, 31/12/2020 – 17/11/2021. Presented in US dollars. Currency fluctuations between the dollar and pound may result in higher or lower investment returns. Returns through 17 November due to data availability.

[xi] Source: CoinMarketCap, as of 3/12/2021. Bitcoin closing price, 31/12/2020 – 13/4/2021. Presented in US dollars. Currency fluctuations between the dollar and pound may result in higher or lower investment returns.

[xii] Source: Refinitiv, as of 29/10/21, and Fisher Investments research, as of 2/12/2021. Monthly global IPO activity, August 2021 – October 2021. Global refers to IPO proceeds from the US, China and Hong Kong, Europe, Japan and the UK.

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