Investors Ended 2018 With The Greatest Surge In Bearish Sentiment Ever

The last two days have seen US equity markets soar higher on the heels of the largest short-squeeze since the day after Brexit.

This follows one of the worst Decembers on record for practically every risk asset class, with risky asset flows the worst they have been since the financial crisis…

But, it appears the market was perfectly placed for this week’s huge squeeze/rip higher however, as Goldman Sachs notes that the increase in bearish sentiment as measured by the Investors Intelligence survey during the last week of 2018 was the largest pick-up on record by a wide margin

…with bearish sentiment overtaking bullish sentiment for the first time since 2016…

Goldman’s chief global equity strategist has argued that growth risks appear well-discounted so that if a recession does not come, it is likely that 2019 provides a bounce, followed by more muted returns afterwards. However, one glance at the relationships between the ‘normalization’ of The Fed’s balance sheet (i.e. quantitative tightening) and global stocks and global economic data suggest, as Alasdair Williamson noted, “Don’t be delusional, the entire world is rolling over.”

So all the talk about The Fed’s dovish rate jawboning is entirely missing the point. If they keep ‘normalizing’ the balance sheet, none of this well end well (and the surge in bearish sentiment would have been well placed).