Talking Points:
• Investor sentiment is key to the direction and momentum behind capital flows
• There are many benchmarks for the 'risk' and 'haven' extremes of sentiment - like the S&P 500 and USDollar
• Another means for seeing fear or greed spread through the financial system is comparing market tiers
Want to develop a more in-depth knowledge on the market and strategies? Check out the DailyFX Trading Guides we have produced on a range of topics.
The S&P 500 is a good measure of general market sentiment, but it is not particularly sensitive to early sea changes. Different asset classes have a different risk profile and thereby vulnerability to advance feelings of uncertainty. Generally speaking, the illiquid and higher yielding asset types provide the early warning system to confidence shifts; but there are other ways to measure the transmission of building fear or greed. One particularly good comparison to exploit is the performance through regional economic tiers. We have prime developed economies (like the US), developed markets, emerging markets and frontier markets. Their risk sensitivity intensifies down the scale. And, looking at their performance over the past few years; there may be reason for concern if we are passive bulls. We delve into this risk analysis in today's Strategy Video.
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