Investing

Sentiment

Understanding market sentiment is an important element in making investment decisions and to the ongoing management of an investment portfolio. There are many ways to evaluate market/investor sentiment, including the ratio of put options being traded to call options being traded, the volatility index for those options as measured by the VIX, and various investor sentiment surveys including AAII Bulls versus bears. More nuanced and subjective observations can also be made that provide valuable perspective on the overall mood of people and money. I tend to find those more interesting and often more telling.

Today, I want to share some figures with results of search trends on Google for certain key words. 

Google Search Trend: Stock Market

The interest in the stock market peaked back in late January/early February, which was the more speculative part of the year. Since then, the trend has been steady with a recent pick up in interest. The level of interest doesn’t appear to be euphoric, suggesting the market isn’t likely gearing up for a big selloff in the near term.

Google Search Trend: Recession

Clearly concerns about a recession are percolating again with the search interest back near peak levels for 2021. While growth in economic indicators is slowing, it remains positive. Slowing growth combined with higher inflation is more concerning than merely slowing growth, in my opinion. Whether a recession is right around the corner remains to be seen.

Google Search Trend: Inflation

Interest in inflation has been rekindled as it remains at elevated levels and doesn’t appear to be abating any time soon. Fun fact, the reflation trade (inflation sensitive stocks) peaked in the middle of May, right around the time search interest in inflation peaked. As a matter of fact, materials stocks peaked on May 17th, 2021, two days after the peak in the Google search trend for inflation. These types of sentiment indicators can be quite informative if followed in real time.

Google Search Trend: Bitcoin

I threw this one in for fun since Bitcoin is considered to be a highly speculative type of investment. Compared to earlier in the year, the interest in Bitcoin is fairly muted right now even though the price has made a strong move higher. Bitcoin peaked back in mid-April, about a month before search interest peaked. I’m not sure there’s any relationship there but it does make me wonder if Bitcoin has more room to run to the upside in the near-term. 

Based on Google Search Trends, it appears investor sentiment is fairly balanced right now. Not too bullish. Not too bearish. I don’t know if I would go as far as to say it’s just right but it doesn’t appear extreme at either end. Barring any changes to this or unexpected shocks, it’s not unreasonable to expect the stock market to move higher from here in the near-term.