Sentiment Fatigue

Investor psychology is a funny thing. Just a few months ago, markets were floating on a cloud of AI euphoria, soft-landing optimism, and the reassurance of an accommodative central bank. Every headline was good news. Hot payrolls? Proof of economic strength. Weak payrolls? The Fed will cut. Higher inflation? Consumers are resilient. Lower inflation? The Fed will definitely cut.

In the last few weeks, however — and particularly on Fridays — sentiment has quietly shifted. It hasn’t collapsed, as it did in April, but investors now seem to be scanning the horizon for excuses to sell rather than justifications to buy. A slightly misshapen earnings line, a softer PMI, or some Wall Street pundit’s comment on valuations suddenly becomes “evidence” that the market has run too far, too fast.

This is how bull markets age. Fundamentals don’t change overnight, but the collective mood does. The same data that once fuelled optimism now triggers caution. Investors who spent the past year terrified of missing out are now frightened of overstaying their welcome. Of course, when looking at the big picture, it is notable that nothing particularly dramatic has actually happened.

Growth is fine, inflation isn’t running away, and corporate profits are holding up. But, markets don’t move on facts; they move on interpretation and the CNN Fear & Greed Index now sits at 22, which is a reading of “extreme fear.” Somewhat ironically, it’s also a level that historically has been a fairly reliable buy signal. Not that anyone wants to hear that right now.