Poor Investor Sentiment Could Point To A Recovery In Stocks

Despite the extreme volatility in markets, if the past performance of Fidelity’s composite sentiment indicator is any guide, global stocks could be on the point of a sizeable rally.

Fidelity’s composite sentiment indicator is a proprietary measure of investor confidence that incorporates a range of stock-market indicators including the VIX, director dealing, momentum and fund flows. Typically, low readings of the index are followed by improved stock-market performance over the following six months.

As the graph below shows, the sentiment composite index has dropped to the lowest levels seen since the collapse of Lehman Brothers in September 2008. Could that herald better stocks returns over the next six months?