Economy & context
Market sentiment is a broad label for investors' prevailing risk appetite, expectations or positioning. It is inferred through surveys, prices or flows and has no single canonical measure.
Make it click
A room can feel confident or anxious through voices, posture and behaviour, but no one thermometer captures mood perfectly. Different observers can disagree.
Now put that into markets
Surveys, option pricing, credit spreads, fund flows and breadth each reflect different participants and mechanisms. Sentiment can influence and respond to prices.
Indicators need definitions, histories and baselines. Extreme readings can persist and may reflect fundamentals rather than pure emotion.
Name the proxy, population, timing and direction. Test incremental information beyond current market moves.
Calling an unexplained price move sentiment can become circular. Contrarian rules chosen after seeing history invite overfitting.
Takeaway
