Key Takeaway:
Sentiment has slipped to neutral as the Weight of the Evidence continues to tilt toward Risk and away from Opportunity. It is looking more and more like a risk-off environment.
Liquidity:
We have entered a new regime. The upward trend in bond yields is the most persistent that has been in the past 40 years.
Economic Fundamentals:
Lost in the noise of benchmark revisions to the jobs data is the continued decline in the average work week. Employers don’t want to cut jobs so they are cutting hours and the average workweek is now as short as it has been at any point in the past decade-plus.
Valuations:
The upward acceleration in prices over the course of 2024 was accompanied by a down-turn in the pace of upward earnings revisions. Stocks are priced for perfection at a time when earnings revisions are not moving higher.
Sentiment:
Stocks are most vulnerable from sentiment perspective when excessive optimism fades. We are now seeing that in the II data (where bull-bear spread has dropped below 20%) and the AAII data which has shown more weeks of bears than bulls in 2025 than were seen in all of 2024. If investors through in the towel, stocks are likely to struggle.
Market Trends & Momentum:
The 200-day average for the S&P 500 has been climbing for more than 400 days. Trends at the index level remain strong and supportive of further gains.
Breadth:
The S&P 500 has spun its wheels since the most recent breadth thrust regime expired in December. More stocks made new lows than new highs last week and sector-level trends continue lack robust strength.
