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Dear Friends,
Did you know that the S&P 500 just rallied +12% over the course of 13 days, with the last day (Friday, April 17) marking the most recent all-time high?!
Here at Crescent Wealth Management, while we’re always encouraged by market upswings, we’re constantly looking under the surface as a part of our investment process. Every day is a learning opportunity for us as we’re constantly pushing the boundaries for delivering the best service and support to the 110 individual families we serve daily.
One of the more interesting dynamics in today’s market is not just what prices are doing but also how investors feel while it is happening.
Recent commentary from JC Parets of All Star Charts highlights a powerful and somewhat counterintuitive theme. Stocks are very near all-time highs while investor sentiment is at historically low levels. That combination is rare and important. If you would like to read the original commentary, you can access it here: Stocks at All-Time Highs With Sentiment at All-Time Lows - TrendLabs
Traditionally, market peaks are associated with optimism, confidence, and widespread participation. Think back to the late stages of the dot com era when enthusiasm was extreme and investors were fully invested. Today looks very different and for that we’re grateful (this is not a FOMO/Mania market top).
Sentiment surveys are showing record pessimism. Investor positioning remains defensive and underexposed to stocks. Short interest (bets against rising stock prices) is elevated across many stocks and media narratives continue to lean negative. At the same time, major indices like the S&P 500 and Nasdaq 100 are reaching new highs, market participation is broad including small caps and international equities, and the overall trend remains firmly positive. This divergence between strong prices and weak sentiment is what creates opportunity. In our opinion, most investors, even professionals, miss these underlying pieces of objective evidence and curious interest.
Markets tend to struggle when optimism is excessive and investors are fully committed. In contrast, markets often perform best when skepticism is high and capital remains on the sidelines. As Parets points out, today’s environment is effectively the mirror image of classic market tops. In practical terms, when investors are underinvested/bearish/fearful, there is fuel for markets to move higher. When sentiment is negative, expectations are already low and positive surprises can have an outsized impact on prices. This is often described as the market climbing a wall of worry as it advances despite widespread doubt.
Another key takeaway is that this is not a narrow or concentrated rally. While headlines often focus on large technology companies associated with Artificial Intelligence, the broader data shows expanding participation across industry sectors (like energy--even before Iran, materials, and industrials), strength in small cap stocks, and global equity markets which are also reaching new highs. This type of breadth tends to be a healthier foundation for sustained market advances. While no single indicator should drive investment decisions, the combination of strong trends and weak sentiment is historically constructive. That does not eliminate volatility. Short term swings are a normal part of markets, especially in environments where uncertainty remains elevated. Geopolitical events bring an emotional component to investors’ decision-making process, and it often results in more excessive market choppiness for a limited time.
Periods like this reinforce a few core principles. Markets do not require widespread optimism to move higher. Waiting for comfort often means missing opportunity (consider the market rally during the midst of COVID-19). Discipline and positioning matter more than headlines. The current environment may feel uncomfortable, but that discomfort is often where opportunity resides. As always, we remain focused on maintaining appropriately diversified, timely and resilient portfolios, actively monitoring conditions, and staying disciplined through both optimism and uncertainty.
If you have any questions or would like to discuss your portfolio, please do not hesitate to reach out.
EH
P.S. Did you know that buying stocks at all-time highs has historically proven to be a great strategy? In fact, 3 and 5 years later respectively, returns averaged nearly 28% and 50% for the S&P 500 index.
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